Recession, rates and energy concerns likely to bring jittery week ahead
“Recent risk-on moves appear to be on thin ice as markets gear up for another bout of earnings and a crucial Fed rate decision. As we have seen with the ECB and BoC, central banks are happy to push rates faster than most expect, with governors seeking to act swiftly before recessionary pressures kick in. Thus, while markets currently attribute a mere 10% chance of a 100-basis point move, recession expectations do raise the possibility that Powell opts to front-run future hikes to the benefit of the dollar. In Europe, the latest German Ifo survey highlighting that the country is on the brink of an energy-driven recession. While gas does flow into Germany via the Nord Stream 1 pipeline once again, it appears that the pre-maintenance 40% flow level has now dropped to just 20% in a fresh knock an already troubled German economic outlook.”
UK banks on the front foot ahead of earnings
“UK banking stocks are enjoying a welcome boost today, despite the looming earnings risk that could soon see such gains eroded later in the week. With the Fed expected to raise rates by 75-100 basis points on Wednesday, we are set for a timely reminder that banking margins will continue to improve as we move throughout this year. However, while banking stocks typically benefit from higher rates as they often come against a strong economic backdrop, financial stocks are at risk given the looming recession that is widely anticipated.”
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