CAUTION GRIPS MARKETS

Robust retail sales reflect the U.S. economic resilience

 

Wall Street’s primary stock indices experienced significant declines on Tuesday, influenced by unexpectedly robust retail sales data, which intensified concerns about prolonged higher interest rates. This unease was exacerbated by reports suggesting that ratings agency Fitch could potentially downgrade multiple banks. The Commerce Department’s report, indicating a 0.7% growth in retail sales last month compared to an anticipated 0.4% rise, underscored the resilience of the U.S. economy.

 

Market apprehension grows as interest rate uncertainty lingers

While traders’ expectations of a Federal Reserve rate hike pause next month remained at 89%, market participants expressed apprehension that interest rates could persist at current levels for an extended period. The inversion of the U.S. Treasury yield curve for over a year has squeezed bank profits on loans. Consequently, the S&P 500,  Nasdaq  and  Nasdaq plummeted by +2% in the last 5 trading sessions. Declines were widespread across all 11 major S&P 500 sectors, with energy stocks leading losses due to softening crude prices. Weakness is seen building up in tech stocks as well.

 

European Markets Await ECB’s Stimulus Strategy

The ECB’s current stimulus program includes purchases of asset-backed securities and covered bonds, though markets are keeping a close eye out for plans to announce purchases of government debt, a stimulus tool known as quantitative easing that sends stocks rising as a side effect. European markets have seen mild profit booking this week extending the slide from last week.

 

European markets await ECB’s stimulus strategy

China cut its benchmark one-year deposit rate by 25 basis points to 2.75% and trimmed its one-year lending rate by 40 basis points to 5.6% to spur recovery. Asian markets have fallen +2.5% while the Chinese markets have corrected by +5% in the last 30 days. These woes are underscored by Barclays revising down its forecasts for China’s 2023 growth due to the housing market’s rapid deterioration. As the central bank’s interest rate cuts on the same day fail to fully mitigate the economic downturn, experts caution that consumers and small businesses may experience economic strain akin to a recession, with deep youth unemployment and deflationary pressures exerting further pressure.

 

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