{"id":192439,"date":"2023-06-23T12:30:00","date_gmt":"2023-06-23T16:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=192439"},"modified":"2023-06-23T16:23:49","modified_gmt":"2023-06-23T20:23:49","slug":"recession-fears-dampen-investor-optimism-jun-23-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/recession-fears-dampen-investor-optimism-jun-23-2023\/","title":{"rendered":"Recession Fears Dampen Investor Optimism: Jun. 23, 2023"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Investor sentiment is plummeting this morning as various economies exhibit duress from aggressive central bank tightening, which is fueling fears that a global recession has become more likely. Germany and France have recently generated weaker-than-expected economic data while China, which is still trying to stimulate a recovery from the Covid-19 pandemic, continues to suffer from anemic retail sales, industrial production and fixed asset investment growth.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Sentiment is also being rocked by the U.S. Purchasing Managers\u2019 Index underscoring a familiar trend\u2014manufacturing is buckling under the stress of higher interest rates, but the services sector continues to experience inflation and strong demand as consumers increasingly travel and dine out after being unable to engage in those pastimes during Covid-19 lockdowns. The results appear to reinforce yesterday\u2019s congressional testimony by Federal Reserve Chairman Jerome Powell, who emphasized that the central bank has a long way to go to bring inflation down to the organization\u2019s 2% target.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With those developments in mind, investors are assessing how the economies of the UK and Norway will weather recent surprisingly high 50-basis point (bp) rate hikes by each country\u2019s central bank. In making the rate hikes, policymakers warned that inflation is still unacceptably high.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>U.S. Services Grow as Manufacturing Declines<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">This morning\u2019s flash Purchasing Managers\u2019 Index (PMI) data reflected continued expansion in services while manufacturing dug deeper into contraction territory. The services sector grew strongly so far this month, reaching an Index level of 54.1. June\u2019s growth came in near projections of 54, while decelerating slightly from May\u2019s 54.9 level. Consumers continued to spend strongly, driving persistent growth against the backdrop of higher interest rates. The pace of hiring slowed to its lowest rate since January due to difficulties finding qualified workers. Wage pressures remained strong, but service providers chose to take the hit to margins rather than increase consumer prices proportionally to grow revenues. Nevertheless, services price pressures remained too high.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Manufacturing fell deep below the contraction\/expansion border of 50, notching a reading of 46.3 this month. The reading came in south of economist estimates of 48.5 and of May\u2019s level of 48.4. Higher interest rates weighed heavily on goods spending, which unlike services, tend to be purchased with debt. The impact was felt both domestically and internationally. Qualified job candidates, however, had a positive impact on hiring, helping relieve work backlogs amidst the sharpest decline in new orders all year. Goods inflation continued to weaken to the slowest pace of the year as the interest rate sensitive manufacturing sector continues to respond to the higher for longer mantra.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Eurozone Disappoints<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Unlike in the U.S., both the services and manufacturing sectors in Germany lost much more momentum this month than anticipated. The broad HCOB German Flash Composite Purchasing Managers&#8217; Index from S&amp;P Global fell to 50.8 in June from 53.9 in May and missed analysts&#8217; expectations for a reading of 53.5. With a score of 54.1, the services sector remained in growth territory but weakened significantly from 57.2 in May. Manufacturing, however, fell deeper into contraction territory, weakening from 43.2 in May to 41.0 for June. The dismal data signals that Germany is likely to fall deeper into recession in the coming months.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">France is also struggling with its June PMI dropping to 47.3\u2014the first contraction reading since January and a 28-month low. The PMI reading is fueling speculation that France experienced negative GDP during the second quarter of this year.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>China\u2019s Economy Decelerates<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Retail sales in May increased 12.7% y\/y but the growth rate was down substantially from 18.4% in April.&nbsp; The slowdown was partially driven by housing market trouble with sales of home appliances and building materials being particularly weak. Industrial production also weakened, falling from 5.6% y\/y in April to only 3.5%. In another development, fixed asset investment during the first five months of this year increased 4% y\/y compared to 4.7% during the first four months of the year.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>U.S. Markets React<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Markets are cautious this morning, as risk-off sentiment emerges on Wall Street with investors piling into bonds and away from stocks. All major indices are down over 0.5%, with the tech-heavy Nasdaq Composite Index leading the way lower with a 1% decline. The S&amp;P 500 Index is down 0.6%, with mostly all sectors lower while utilities and homebuilders are higher. Bonds are catching strong bids, with yields down across the curve but with the very short-end higher by about 3 bps. The 2- and 10-year Treasury maturities are down 4 and 5 bps to 4.76% and 3.74. Dismal PMI data from Europe signaling a faster rate of decline in GDP is weighing on the euro currency, absolutely negating the impact of lower yields and driving the Dollar Index up 56 bps to 102.97. Risk-off sentiment and fears of recession are extending to energy markets as well, with the higher dollar also contributing to weakness. WTI crude oil is down 1.5% to $68.47 per barrel, below the important support level of $70 and nearing breakeven levels for smaller, domestic producers.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-investors-look-to-europe\"><strong>Investors Look to Europe<\/strong><\/h2>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>This morning\u2019s data points to Europe falling into a pronounced recession that could spread to other nations and cause the U.S. to experience negative economic growth during the final quarter of this year.<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">The U.S. economic recovery appears much firmer than recoveries experienced by other nations with consumers continuing to spend on entertainment and dining out while central bankers remain disciplined with hawkish policies. This morning\u2019s data points to Europe falling into a pronounced recession that could spread to other nations and cause the U.S. to experience negative economic growth during the final quarter of this year. Equity markets today appear closer to pricing in those fears, but with significant downside risk possible.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Visit&nbsp;<a href=\"https:\/\/tradersacademy.online\/trading-courses\/introduction-to-macroeconomics\"><strong>Traders\u2019 Academy<\/strong><\/a>&nbsp;to Learn More about the PMI, Monetary Policy, and Other Economic Indicators.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investor sentiment is plummeting this morning as various economies exhibit duress from aggressive central bank tightening, which is fueling fears that a global recession has become more likely. <\/p>\n","protected":false},"author":903,"featured_media":183005,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[5,12711,18,6,8,9,26,3],"tags":[216,9362,579,1685,3598,1117],"contributors-categories":[13760],"class_list":["post-192439","post","type-post","status-publish","format-standard","has-post-thumbnail","category-europe-middle-east-africa","category-ibkr-economic-landscape","category-macro","category-north-america","category-region","category-securities","category-text-articles","category-traders-insight","tag-china","tag-economic-outlook","tag-eurozone","tag-macro","tag-market-outlook","tag-recession","contributors-categories-ibkr-macroeconomics"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 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