Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Recession Concerns Vie With Inflation Risk For Investors

By CMC Markets (Michael Hewson)Market OverviewMay 23, 2022 06:32
Recession Concerns Vie With Inflation Risk For Investors
By CMC Markets (Michael Hewson)   |  May 23, 2022 06:32
Saved. See Saved Items.
This article has already been saved in your Saved Items

We saw another week of declines for US markets on Friday, with the S&P 500 closing lower for the seventh week in succession, making a fresh 18-month low, and briefly retracing 50% of the move from its 2020 lows to its record highs late last year.

The Nasdaq 100 similarly pulled off new 18-month lows, with little sign that despite closing well off its intraday lows, the downside pressure is set to diminish, as it posted its worst losing streak since 2001 when the dotcom bubble burst.

One of the main characteristics of the recent weakness in US markets has been concern over valuations given the length of time of this current rally. While the weakness in tech stocks has led to this current weakness there is increasing evidence that a combination of rising inflation, interest rates, and concerns over a weakening US economy could see a recession by year-end.

Consequently, the sell-off that started in tech is now starting to bleed into the wider market.

It is these concerns that appear to be driving US bond markets if last week’s price action is any guide. For most of this year yields on US treasuries have risen at an accelerated rate, with the US 10-year yield rising from 1.51% at the end of last year, to peak at the beginning of this month at 3.20%.

Since then, yields have lost momentum, and not because markets are dialling back their expectations for US rate rises, but because of rising concerns that we could be heading for a sharp slowdown in economic activity.

The US dollar also appears to be showing early signs of failing momentum, posting its biggest weekly loss since early February, and first weekly loss since April, despite increasingly hawkish rhetoric from Federal Reserve officials.

This more aggressive tone from the likes of Federal Reserve chairman Jay Powell, as well as other Fed officials, at a time when the likes of big US retailers Walmart (NYSE:WMT) and Target (NYSE:TGT) are issuing profit warnings, is prompting fears that the US central bank is willing to risk pushing the US economy into a recession in order to tame the inflation genie.

The calculation being made appears to be that with a buffer of an unemployment rate at multi-year lows, and vacancy rates at record highs, they have enough wriggle room to absorb slightly higher levels of unemployment if it means getting prices under control.

European markets also lost ground last week, however, the losses were small in comparison, even though concerns over a recession aren’t any less worrisome, given the higher levels of inflation being seen across Europe.

Last week the latest Germany PPI numbers for April saw yet another record high of 33.5%, driven higher by surging energy prices, yet we’re somehow expected to believe that headline CPI is at a mere 7.4% on an annualized basis. Economic optimism in Europe’s biggest economy has collapsed in recent months, as two of the country’s biggest export markets saw a collapse in economic activity.

The Chinese economy has ground to a halt in the last two months so much so that no cars were sold in Shanghai during the month of April, while Russia’s invasion of Ukraine has turned it into a global pariah.

Today’s German IFO business climate survey for May is expected to show that the modest rebound in April has given way to further weakness, slipping from 91.8 to 91.4.

As if to highlight the current uncertainty facing the global economy the last three weeks have seen Brent crude oil prices close where they started the week close to $112 a barrel, despite attempts to move lower.

Concerns over demand destruction appear to be limiting the upside, while threats of oil embargoes are keeping a floor under the downside.

As we look ahead to another week the main debate continues to be over whether we’ve seen peak inflation, and if so, how quickly can it fall back from current levels.

This week we’ll get a further insight into the US economy, with the latest US Q1 GDP numbers, as well as the latest Fed minutes, and US personal spending and income for April.

Asia markets have got the new week off to a mixed start, with China markets under pressure again as cases of COVID in Beijing hit a new record, while the Nikkei has edged higher. The positive start for the Nikkei looks set to bleed into a higher open for markets in Europe, with sentiment continuing to remain flaky at best.

EUR/USD – rallied off the lows at the 1.0340 area, but we need to see a move through the 1.0650 area to make things interesting and signal a move towards 1.0820. The bias remains for a move lower towards parity, while below 1.0650.

GBP/USD – moved up to the 1.2520 area last week. We have an area of support at the 1.2320 area, as well as the recent lows at 1.2150. We need to see a move above 1.2530 to target 1.2630.

EUR/GBP – finding resistance just below the 0.8500 area, with stronger resistance at the 0.8520/30 area. Support remains down near the 0.8420 area.

USD/JPY – currently finding support just above the 126.80 area. A break below targets the 123.00 area. As long as 126.80 holds then a move towards the 135.00 area target remains intact.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Original Post

Recession Concerns Vie With Inflation Risk For Investors

Related Articles

Michael Kramer
S&P 500 May Fall Another 15% By Michael Kramer - Jun 24, 2022 4

This article was written exclusively for Investing.comWhile stocks are down sharply on the year and cheaper in price, markets are still not reasonable from a valuation perspective....

Ipek Ozkardeskaya
Sentiment Is Better, News Is Not By Ipek Ozkardeskaya - Jun 24, 2022 2

The market sentiment is better, but the news is not. The latest flash PMI readings from Japan to Europe, and the US, showed a slowing global activity in June. Almost all regions...

Recession Concerns Vie With Inflation Risk For Investors

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email