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Recession? Soft landing? Stagflation? Investors assess economy’s strength

With a miserable first half for the stock market now in the history books, investors are assessing whether the U.S. economy can avoid a significant downturn as the Federal Reserve raises rates to fight the worst inflation in decades. The answer to that question stands to have a direct impact on markets. Strategists say an economic slump coupled with weak corporate earnings could push the S&P 500 lower by at least another 10%, compounding losses that have already pushed the benchmark index down 18% year-to-date. Conversely, in a scenario that ...

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Key events in developed markets next week

Inflation well above target, consumer sentiment at all-time low The market is favouring a 75bp rate hike from the Federal Reserve on 27 July and we agree given the tight jobs market and inflation running at more than four times the 2% targeted rate. In fact, inflation is likely to move even further above target this coming week as gasoline, food, shelter and airline fares continue to rise apace. Core inflation may slow marginally to 5.8% from 6%, but this too is well above target. We will also be looking ...

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Global equity funds see a second weekly outflow on slowdown worries

Global equity funds faced a second straight week of outflows in the week to July 6, as investors remained concerned about a global economic slowdown and recession risks due to interest rate hikes by major central banks. According to Refinitiv Lipper, investors withdrew a net $7.74 billion out of global equity funds. That compares with outflows of $8.92 billion in the previous week. Data showed U.S. manufacturing activity slowed more than expected in June, while the euro zone’s business growth also moderated. “A US recession starting this Q4 is our ...

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Valuations of Asian stocks hit lowest since March 2020

Valuations of Asian equities dropped for a third straight month in June and hit their lowest since the start of the pandemic, as regional equity markets plunged on concerns over a global recession and aggressive rate hikes by major central banks. The MSCI Asia-Pacific index’s forward 12-month price-to-earnings ratio (P/E) stood at 12.1 at the end of last month, which was the region’s cheapest valuation since March 2020, Refinitiv data showed. “Concerns about earnings downgrades and rising cost of capital have driven down valuations, though earnings estimates, we feel, are ...

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European shares struggle ahead of U.S. jobs data

European shares opened slightly lower on Friday and struggled to make gains after the shooting of Japan’s former prime minister caused a pullback in Asian shares, while investors waited for key U.S. jobs data later in the session. Investor sentiment had been positive earlier in the session, which analysts said was due to attempts by U.S. Federal Reserve policymakers to ease recession fears and news of Chinese fiscal stimulus. U.S. indexes had a positive close on Thursday after Fed Governor Christopher Waller called recession fears “overblown”, while St. Louis Fed ...

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Scalded by Russia, investment funds tread carefully in China

China, the only big economy promising a growth rebound this year, is again luring foreign investors. Yet the fear that Beijing may someday end up as ostracised from global markets as Russia is keeping a lid on demand. The scale and coordination of Western sanctions on Russia triggered by President Vladimir Putin’s Feb. 24 invasion of Ukraine stunned financial markets and left managers sitting on billions of dollars of assets suddenly made worthless overnight. While such a move against China seems far-fetched given its economic size and the vast amount ...

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Chipmakers revive stocks as euro struggles after freefall

Chipmakers revived stock markets on Thursday, helping to sooth investor worries over a potentially rapid recession because of looming rate hikes, while the euro struggled near a 20-year parity with the safe-haven dollar. Sterling rose 0.6% after reports that Britain’s Prime Minister Boris Johnson will resign following a string of ministerial resignations, after plumbing 2-year lows on Wednesday amid political uncertainties. The FTSE blue chip index in London gained 0.9%. Crude oil fluctuated on either side of $100 a barrel as tight supplies and worries over demand jostled for market ...

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Euro plunges to two-decade low vs dollar as economic fears mount

The euro sank to a two-decade low versus the dollar on Tuesday as another surge in natural gas prices reignited worries about the health of the euro zone economy and data showed euro zone business growth slowed sharply in June. The euro tumbled 0.9% against the dollar to $1.0325, its weakest since December 2002. Versus the Swiss franc, it dropped 0.7%to 0.9941 francs, its lowest since 2015. “It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks ...

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Rebound in oil prices gives world stocks a lift in holiday trade

A rebound in oil prices on concerns of tight supply gave world stocks a lift on Monday in a session hit by a U.S. holiday. Oil got a reprieve as lower output from the Organization of the Petroleum Exporting Countries (OPEC), unrest in Libya and sanctions on Russia outweighed fears of a global recession. “Oil fundamentals remain supportive,” said Warren Patterson, head of commodity research at ING. “Clearly OPEC is still struggling to hit its agreed output levels,” Output from the 10 members of OPEC in June fell 100,000 barrels ...

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Investors brace for pivotal July after dismal first half

The U.S. stock market is reeling from its worst first half of any year since 1970, with investors girding for a series of potential flashpoints in July that may set Wall Street’s course for the coming months. Second-quarter corporate earnings, hotly anticipated U.S. inflation data and the Federal Reserve’s monetary policy meeting are among potentially pivotal events after the S&P 500 fell 20.6% in the initial six months of 2022. For now, the mood on Wall Street is grim. Bonds, which investors count on to offset stock declines, have tumbled ...

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China takes fresh steps to open bond market to foreigners

China took fresh steps on Friday to facilitate foreign investment in its $20 trillion bond market, saying it would cut service fees, improve overseas access to foreign exchange hedging, and streamline the process of opening accounts. China will also facilitate cross-border bond subscriptions, and make it easier for foreign passive funds to trade Chinese bonds, the China Foreign Exchange Trade System (CFETS), affiliated to China’s central bank, said in a statement. Passive funds track indexes, as opposed to active funds where managers pick assets to invest in. Overseas investors reduced ...

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Key events in developed markets next week

Key events in developed markets next week | Article | ING Think US jobs figures are released next Friday. For us to seriously consider changing our July Fed call we would need to see payrolls growth fall with the unemployment rate moving a couple of tenths higher and wage growth showing signs of stagnating Expectation of a 75bp rate hike from the Fed is unlikely to change Between now and the 27 July Federal Open Market Committee (FOMC) meeting there are only two US data releases that could potentially prompt ...

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Take Five: The second half

After a torrid six months, world markets will be hoping for some sign that central banks might dial back their hawkishness. U.S. jobs data, if sharply below forecast, might prove that catalyst. Central banks are front and centre elsewhere, too. The ECB kicks off its bond reinvestment scheme to shield southern Europe’s fragile economies; emerging markets’ policy-tightening spree will continue; and in Australia, a half-point rate rise is expected. Here is your look at the week ahead in markets from Karin Strohecker and Sujata Rao in London, Ira Iosebashvili in ...

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Global investors turn sellers in equity funds on recession fears

Global equity funds faced outflows in the week to June 29, as recession fears crept higher, with major central banks looking keen to raise interest rates further to tame soaring inflation. According to Refinitiv Lipper, investors disposed of a net $20.79 billion worth of global bond funds in a fourth straight week of net selling. Fund flows: Global equities, bonds and money market Federal Reserve Chairman Jerome Powell said this week that there was a risk the U.S. central bank’s interest rate hikes could slow the economy too much, but ...

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Second half starts with a fresh drubbing for stocks

The second half of the year started with another first class drubbing for global stock markets on Friday, as the recession concerns that have built in recent weeks also shoved oil and metals lower again. MSCI’s world stocks index has had its worst start to a year since its 1990 creation over the last six months and a 1% early tumble in Europe and for Wall Street futures pointed to more pain ahead. Asia had thudded lower too with the heaviest fall in Taiwan, where the growth-sensitive benchmark index slid ...

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