The dual threat of recession and high inflation weighs on market sentiment


US stock index futures and European bonds fell as investors worried about the twin threats of slowing economic growth and stubborn inflation.

Contracts on the S&P 500 and Nasdaq 100 each fell at least 0.3 after underlying indices capped their 11th decline in 13 weeks.

European stocks rebounded for the first time in four days as dip buyers emerged.

The dollar erased its losses. Italian bonds tumbled as investors eyed domestic tensions.

US markets were closed for the Independence Day holiday.

World stocks and bonds are in the grip of their worst sell-off in at least three decades as the growing odds of a US – or even global – recession unsettle investors.

At the same time, stubborn inflation has left the Federal Reserve little room to slow monetary tightening. This toxic combination presents the markets with a trading challenge not seen since the late 1970’s.

The Fed hiked rates by 75 basis points on June 15, the largest move since 1994.

“The market is more concerned about economic growth than just liquidity drain and inflation,” wrote Stephen Innes, managing partner at SPI Asset Management, in a statement.

“In contrast to previous downturns, inflation is much higher and unemployment is much lower. These dynamics are delaying any possible dovish pivot by the central bank, despite the rapid shift in front-end interest rate expectations over the past week.”

The MSCI All-Country World Index, the global equity benchmark, plunged 21 percent in the first half of this year, its worst losses since at least 1988.

Similarly, the 14 percent drop in the Bloomberg Global Aggregate Index for investment-grade bonds was its worst performance since 1990, the earliest date for which records are available.

The dollar was little changed yesterday after trading lower for most of the European session. US President Joe Biden could announce the lifting of some tariffs on Chinese imports as early as this week, Dow Jones reported.

In Europe, the Stoxx 600 benchmark rose 0.5 percent. Energy, materials and healthcare stocks were the biggest gainers.

Italian bonds slid as investors waited for a meeting between Prime Minister Mario Draghi and Five Star leader Giuseppe Conte to settle weeks of political tensions. The nation’s 10-year yield rose 15 basis points to 3.24 percent, widening its spread over German Bunds to 1.91 percentage points.

In China, officials were trying to stave off an outbreak of Covid that could hit an economically important region.

This is another test of Beijing’s strategy of eliminating the pathogen with mass testing and disruptive lockdowns.

An indicator for Chinese stocks traded in Hong Kong fell to its lowest level since June 24.

Separately, developer Shimao Group Holdings Ltd. said it failed to pay a $1 billion note due Sunday that is among the biggest defaults so far this year in China.

Crude Oil rose as traders weighed tight supplies against a global economic slowdown. Bitcoin hovered above the $19,500 level. The dual threat of recession and high inflation weighs on market sentiment

Fry Electronics Team

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