Global Markets Analysis - June 7
8 June 2022
The global economy is finding itself in a difficult place. The war in Ukraine and the sanctions against Russia are providing a new hit to the global economy, notably through higher food and energy prices, just as most western economies are emerging from the COVID-19 pandemic. At the same time, new COVID-19 outbreaks in China are not only hitting the Chinese economy, but also creating new challenges to global supply chains, as well as hitting countries with large export shares in the Chinese markets, such as the euro area.
Yesterday was an unstable day dominated by zigzags. European stock markets ended the day with a decline, amid concerns about the effects of monetary policy tightening steps expected from major central banks on the economy. While investors are waiting for the European Central Bank (ECB) policy decision to be announced this week and the US inflation figures, the Australian Central Bank made the sharpest increase in the policy rate in 22 years and signaled that it will continue to tighten. The World Bank updated its macroeconomic forecasts yesterday. Due to the Covid-19 outbreak and the effects of the Russia-Ukraine war, it lowered its global economic growth forecast for this year by 1.2 percentage points from 4.1% to 2.9%. While it determined its growth forecasts for the USA and Euro Zone as 2.5%, for Japan as 1.7% and for China as 4.3%, it determined its growth forecast for Turkey as 2.3% this year and 3.2% for 2023. As can be appreciated, the uncertainty brought by the war and the disruptions in the supply chain put pressure on the global growth outlook, while causing the risk of recession and stagflation to remain on the agenda
US stock markets, which started the day with a decline in the shadow of the downside updates of the World Bank on the demoralizing global economy, finished the day with an increase of close to 1%, closing their losses during the session. In general, we think that global stock indices, which follow an uncertain but generally downward course, will gradually get rid of their pessimistic mood in the coming weeks. In the current ecosystem, the Nasdaq index, which comes to mind first when it comes to risk appetite, as war, supply crisis, inflation, central bank monetary policy change towards tightening, recession and stagflation, still continues to meet the year with a decrease of 23%. Losses in the S&P500 index, in which the largest 500 companies in the USA are traded, are at the level of 13%. We think that this negative performance compared to the beginning of the year will continue for a short time and that the sales in the stock markets will be replaced by a recovery as the FED increases by 50 basis points in a row and then takes its foot off the gas (this is our expectation). We are of the opinion that the pricing reflected by the market adequately reflects the existing and known risks.
At the beginning of the new day, we see that Asian markets are trying to complete the day with an optimistic 1% increase, with the help of the Japanese economy's shrinkage a little less than expected in the first quarter of the year. On the agenda of financial markets, the interest rate decision of the Central Bank of India, German industrial production and Euro Zone growth data will be followed. As we mentioned in our report at the beginning of the week, the markets are waiting with great curiosity for the European Central Bank (ECB) regular meeting that will conclude tomorrow and the US inflation data on Friday. In particular, the ECB is expected to harden its tone and signal an interest rate hike against inflation, which has risen to the peak of multi-years in Europe. Markets are waiting for data on Friday to show that US inflation has weakened (expected 8.3% YoY).
Gold, silver and Bitcoin continue to oscillate around familiar levels. Silver does not want to move away from the technical level of $ 22, while the price of gold continues to trade in the band of 1.840-1.850, just below the uptrend line, which is around $ 1,860 an ounce. In both commodities, the weekly closing will be important. On the other hand, we see that Bitcoin continues to gather strength above the danger zone at $ 28,800 and generally around $ 30,000