The ‘look across the valley it is all priced in’ approach was in full swing on the day. We saw a huge two-hour rally post the rate hike from the US Federal Reserve.
This was not profit-taking on short positions. This was pure Wall Street mania, that they are smarter than the obvious and could look ahead to the other side?
As such, this rally could have at best another 24 hours to run. It is however a key range break to the upside in price action terms and this alone could feed further buying. Particularly from momentum models.
As we discussed in advance, this was a likely scenario, but I maintain my bearish caution outlook. What Wall Street is missing on the day is that the Fed course now represents 1-3 years of real pain for mortgage holders, the property market in general, and therefore flow through credit effects across the whole economy. We also saw the Services PMI joining the manufacturing PMI in sharp decline.
We were perhaps the first to be warning of a “Triple Recession” risk in the northern hemisphere this year – Europe, the USA, and China.
Some US firms are now discussing the risk of what they call a global recession.
This is highly mistaken. Perhaps an attempt to disguise how badly the US economy has been managed with behind the curve Fed policy. If it is global, then it is not locally caused.
We have seen the same stretch in the Australian federal election campaign. Ignore all the local forces such as stimulus and crisis rate settings that should not have been held, and instead say the inflation is all offshore factors?
The idea of a global recession is highly mistaken, as the Middle East, Africa and South America post-Covid, are all steering relatively more individual economic paths.
Asia is an incredibly strong anchor economically. Though it will broadly suffer as China enters a ’touch and go’ recession.
The key point is that the region will emerge quickly from the China recession. While the USA and Europe will experience more prolonged and entrenched slow-downs.
This will be a “Triple Recession” in Europe, USA and China momentarily. Not a global recession. The gross global GDP data will suffer a significant setback, given the world’s three largest economies could all be in recession at the same time, but such global perspectives are no longer as relevant as they once were.
For markets though, yesterday’s Wall Street rally does look a little like an emperor with no clothes.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
