Growth risk key question for the second half of 2022
|As we start the second half of 2022 investors remain focused on these major fears outlined in our previous article. However, the growing risk for the second half of 2022 is starting out to be over recession worries. The latest core PCE print from the last day of June would have provided some relief as the headline print came in below forecast at 4.7% vs 4.8% forecast.
So, inflation fears can take a step back as we start 2022. However, growth fears cannot. Copper prices have fallen on slowing growth worries and industrial metals have been falling over the last few weeks too. Commodity markets are sensing a slow down in demand. Oil markets, with their disparate drivers, have also been showing signs of weakness. Similarly, we see some signs of inventories rising. Here is a quick snapshot of South Korea’s chip inventory. You can see that the chip shortage can quickly be replaced by a glut in chip supply.
These narratives are not new. This is what many canny investors have been fearing from the start of the year. You can see this chart from Bloomberg illustrating stocks on track for their worst drop since 2008 below. Now in one sense that is not so surprising given the huge amounts of fiscal and monetary policy support during COVID’s surge. The prospect of the central bank’s hiking into slowing growth has been the cause for stock falls.
So, as inflation fears fade - growth worries will not. So, where will the turning point be for stocks to start gaining again? Most likely at the first point where investors sense that central banks will be pausing interest rate hikes to allow growth to recover. Look at these key tech levels ahead on the Dow. Some inverts will use key tech levels to manage risk once/if the monetary policy tide has turned.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.