The U.S. officially enters a recession
The U.S. economy shrank for the second consecutive quarter, meeting generally recognized criteria for a recession. However, despite a 0.9 percent yearly decline in the gross domestic product, many economists claim that “we are not in a recession.”
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China continued its lockdowns that appeared to hurt its economy as the rest of the world said goodbye to COVID. The nation’s real estate market and stock market suffered as a result. Currently, the government has directed state banks to buy equities to stop excessive selling.
Rate hikes from all central banks worldwide are pushing markets lower. In the last week, DAX 40 fell by 4%, S&P 500 by 6%, and Dow Jones by 5%. Commodities followed, with WTI Crude Oil down 8% and natural gas down 11% for the week.
The Bank of England joined Federal Reserve and raised interest rates as expected by 50 bps to fight high inflation. This marks the 7th consecutive rate hike, pushing borrowing costs to the highest since 2008.
The Federal Reserve increased its federal funds rate by 0.75% to 3.25%, intensifying its fight against inflation. US markets staged another late-day reversal, giving up their gains. With the Fed’s most recent increase, the short-term benchmark rate is at its highest since 2008.
The dollar index reached 111, the highest point since June 2002. The crisis in Ukraine is expected to worsen as President Putin announced a partial military mobilization in Russia, and investors are fleeing for safety. At the same time, they wait for the FOMC decision later in the day.
On Monday, European and American equities markets were poised to open lower as investors refrained ahead of a huge week for central bank decisions. This week is highlighted by Fed, which will likely deliver another supersized rate boost to manage soaring inflation.
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Worries about limited global supply helped WTI crude futures rise 2% to $80, pulling away from 9-month lows at $76 earlier this week. Hurricane Ian caused a reduction in US crude output of around 190,000 barrels per day, or 11% of the Gulf’s total.
The Bank of England announced that it would start making temporary purchases of long-term UK government bonds on September 28 in order to restore orderly market conditions. The British pound remained volatile, first rising to above $1.08 before dropping to $1.05.
Leaders in Europe thought the two explosions that destroyed the pipelines used to transport Russian natural gas to Europe were intentional. However, some officials accused the Kremlin of being behind the explosions, saying they were meant to be a warning to Europe. Meanwhile, EU gas is up 13% on Wednesday.
European equities markets declined sharply, with the German stock index DAX hitting a two-year low of 12,000. The stock index is pressured by the hawkish monetary policy of central banks, which could draw DAX even lower.
The Indian rupee hit a record low of 81.7 and is on track with the retreat of riskier currencies. This is due to recession fears and expectations of a hawkish Federal Reserve policy. Pressure on the rupee is also contributed to an increase in capital outflows from the country.
After four straight days of losses due to concerns about future Russian supply, EU gas futures spiked 8% near €190. This may be due to the Nord Stream report of a pressure reduction at the two lines of Nord Stream and one line of Nord Stream 2.