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US market falters on recession fears and BA steps closer to a strike

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Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown
  • The Nasdaq fell almost 531 points or 4.5% to its lowest level since October 2020. The S&P 500 fell 3.9% while the Dow Jones was down 2.8%, each at the lowest point since last January.
  • Recession fears grow as eyes turn to the Fed’s next interest rate decision, with concerns hikes could be coming too thick and fast.
  • The FSTE shrugs off concerns, rising 0.8% on yesterday, as wage increases and unemployment rates appear positive.
  • Cabin crew and ground staff at British Airways have voted in support of strike action.
  • Oil prices remain elevated on tight supply concerns, despite potential new Covid curbs in China which could dampen demand.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“The US market entered bear territory last night, with its main markets dropping to long-forgotten lows. The crux of the concern plaguing investors is how harshly the Fed plans to tackle rising inflation in the face of stark new CPI data. Getting the balance wrong and hiking interest rates too aggressively could see recession fears become a reality. Concerns may be partially extinguished by today’s US producer prices index (PPI) report, which has started to suggest signs of slowing recently. This is also seen as a leading indicator, compared to backwards looking data sets like CPI.

The FTSE 100 has brushed off these concerns, rising almost 55 points in early trading. The positive step comes despite yesterday’s disappointing April GDP report which saw a sharp contraction of 0.3%. The upbeat tone is being struck by optimism surrounding wage increases, especially in embattled sectors like retail, where pay is being hiked to maintain the workforce.

There’s also good news to be found in unemployment data, with unemployment levels at their lowest since the 70s. All-in this means the UK’s economic outlook isn’t staring at a totally bleak scenario, and is at the present time, muddling through the many challenges. That said, it’s a mistake to say sentiment is wholly positive, with the FTSE 100 down over 200 points over the last month, as a whole. The traditional concerns around inflation, and the ongoing Ukraine crisis are still making their presence known.

Things are tough for British Airways owner, IAG, where cabin and ground grew have voted in favour of strike action at a consultive vote run by the Unite union. Should the action come to pass, this could spell a disaster for the long-haul specialist which is relying on a strong summer season to rebuild resilience after the decimation from Covid. Such action also opens the gates for other airlines to follow suit, which from a consumer perspective means scenes of airport chaos might not be going away. The disputes centre around pay and working conditions, with the situation compounded by many leaving the aviation industry during the pandemic.

Brent crude is hovering at around $123 per barrel, as concerns surrounding supply continue to weigh. That’s despite potential new Covid curbs in China, which could dampen demand. Supply is being suffocated by reduced Libyan oil exports amid a political unrest, at a time other OPEC+ producers are struggling to meet output targets, while Russian oil is facing wide reaching bans. Further volatility in the oil market is all but guaranteed in coming weeks, and we may not have seen the peak.”

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