Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’A red wall of worry has built up across financial markets with investors increasingly nervous that economies are set to career into recession. The FTSE 100 has opened down 1% and stocks in the US ended the trading session sharply lower. The S&P closed down by 4%, the largest drop since the early months of the pandemic in June 2020, while the tech heavy NASDAQ continued its volatile slide downwards, ending 4.7% lower.
More bricks of concern have been added across Asia and Europe with indices across the board in the red as traders assess just how difficult it is going to be for central banks to rein in rampant inflation without pushing economies into reverse. The slide was sparked by the US retail giant Target warning that customers were already buying fewer high ticket items like furniture and electronics, with higher fuel prices and supply chain costs also eating into margins. It comes hot on the heels of Walmart’s. With consumer spending power expected to be eroded further through interest rate rises, the worry is that Target’s pain is a precursor for yet more struggles to come for retailers. A trend also seems to be emerging of people wanting to save their dollars to spend on experiences like holidays rather than homewares with luggage at Target selling fast. Consumers are showing more caution but after the pandemic lockdowns there is clearly pent up demand for travel with airlines like easyJet ramping up capacity to meet demand and bookings at restaurants surging. So while goods price inflation may fall, it may be hard to keep a lid on the price of services, particularly with higher wage costs amid the fight for labour also being passed onto customers.
Sterling is still hovering around a two year low against the dollar, at $1.236 with the latest decline sparked by the super-hot inflation reading in the UK. There are worries that the bank of England is behind the curve on getting prices under control, and is hampered by the risk that an aggressive approach could lead to a painful recession and then a lingering era of stagflation.
Despite the worry about a global economic slowdown, a barrel of Brent crude is still hovering above $110 dollar a barrel as concerns about a lack of supply in the market stay elevated. The EU is still expected to bring in an embargo on Russian oil and now the deal being thrashed out could include tariffs on crude as part of a phased approach. The determination to wean European countries off reliance on Russia remains strong, but without OPEC+ oil producing nations turning on the taps more fully, supply concerns are set to stay.”