Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Euro on recession watch, equities extend winning streak

By XM Group (Trading Point )Market OverviewMar 21, 2022 07:14AM ET
www.investing.com/analysis/euro-on-recession-watch-equities-extend-winning-streak-200620459
Euro on recession watch, equities extend winning streak
By XM Group (Trading Point )   |  Mar 21, 2022 07:14AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Stock markets power higher, flying against hawkish Fed
  • Crunch time for euro, PMI surveys set to reveal war damage
  • Oil spikes higher as EU considers joining Russian embargo


Equity markets advance

Wall Street extended its winning streak on Friday, undeterred by signals that the Fed is about to slam on the brakes to get spiraling inflation under control. The flagship S&P 500 closed the week with gains exceeding 6%, drawing power from a collapse in implied volatility after the Fed laid out its plans for interest rates.

Several FOMC officials have spoken since the last meeting and even the most dovish members like Kashkari seem comfortable raising rates another six times this year. That’s precisely what money markets are pricing in at this stage.

With equity markets rallying even as rate hike expectations grow, it seems like investors are cheering the Fed onwards. There’s a new school of thought that says stock markets are encouraged by the Fed stepping up its game, as a heavy hand now implies inflation won’t be a problem for the economy in the long run.

The flaw with that line of thinking is that market-based measures of inflation expectations haven’t cooled much. With inflation expectations staying elevated, real yields remain subdued deep in negative territory, enabling the powerful rally in equity markets and especially in the most beaten-down growth stocks.

To put it simply, investors think the Fed will struggle to win its battle against inflation. That leaves equities as the main game in town, since bond holders could suffer even more in such an environment and commodity trades are already overcrowded.

Euro braces for tough week

In the currency arena, the euro miraculously came out on top last week amid speculation for a ceasefire in Ukraine, but its luck may be running out. The latest PMI business surveys will be released on Thursday and the forecasts for the euro area seem overly optimistic.

Economists expect the Eurozone composite PMI to dip only slightly in March and to remain comfortably in expansionary territory, which seems unrealistic considering that the data was collected after the war erupted and sanctions were imposed. This sets up the euro for a bigger fall if the PMIs ‘surprisingly’ sink into contractionary waters, reflecting the tremendous uncertainty among businesses.

Overall, investors continue to grapple with the same themes - war and peace, recession worries, and what inflation means for different central banks. The verdict is that the Bank of Japan will lag behind everyone else in the normalization game, hence why the yen has become the market’s punching bag lately.

Oil spikes higher, Powell speaks

In the commodity sphere, the threat of even stronger sanctions against Russia has lit another fire under oil prices. The European Union is considering whether to join the United States in banning Russian oil, adding to the sense of scarcity that’s tormenting energy markets.

Complicating matters further, the peace negotiations in Ukraine have stalled, the deal with Iran that would revive lost production seems stuck, and US shale players are not rushing to raise their own output despite soaring prices.

As for today, market participants will tune in for a speech by Fed Chairman Powell at 16:00 GMT. The big debate right now is whether the Fed will hike rates by 50 basis points in May. Money markets are currently split on this prospect, so Powell’s remarks could be crucial in tipping the scales and consequently, deciding the dollar’s next move.
Euro on recession watch, equities extend winning streak
 

Related Articles

Euro on recession watch, equities extend winning streak

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
Continue with Google
or
Sign up with Email