While some momentary support to equity markets from the Wagner Group mutiny is possible, the fundamental pressure again continues to crumble away at the foundations of recent equity strength.
The former leader of the Wagner group is being exiled to Belarus. Thank goodness his army is not going with him, because then they would suddenly be much, much, closer to Kiev? This is not something anyone would want.
Instead, the Wagner Group will be quickly incorporated into the Russian armies. It is unlikely this force will do anything other than return to the front lines. Hopes of this being the start of an earlier end to the Ukraine conflict may have been overly optimistic.
Stocks could get a momentary lift on such hopes, but really the weight of the current economic slow-down in the USA and the continuation of higher rates, are likely to again see lower stock prices later in the day.
After eight weeks of strong market gains, a correction in US equities was most definitely due. However, I believe there is more going on than just a technical correction here.
The latest S&P Global PMI for the USA has seen a drop from 54.3 to 53.00. This is still expansionary, but this index does not cover as much ground as other key indicators. We know manufacturing has been in recession for some time, and now services are rolling over too. Even contracting.
This, as the Federal Reserve remains extremely comfortable about continuing to raise rates. As the commercial property crisis begins to take hold and the banking crisis simmers in the background, it is difficult to see a United States of America that is not in recession by year end.
The more important point for equities however, is not whether the US has its second recession in as many years, as it is the realisation that growth is going to remain lacklustre for a considerable period of time.
We have a slowing US economy, a slowing global economy, all with on-going extreme inflation and high and going higher interest rate levels.
There is no bullish stock market scenario here. Other than the endless false hopes of a quick turnaround. How is that possible as the US falls further into extreme debt levels in a slowing economic environment with ever greater regulation.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
