Stock indices remain under pressure from high rates

Ray Dalio, a founder of Bridgewater Associates, warned of the risk of rising debt burdens and rising interest rates, putting the economy on the verge of a recession that will make things much more difficult in the next year or two. According to Dalio, debts will grow so much that central banks will have to buy them out.

Most ECB Governing Council officials remain concerned about the risks of rising inflation and intend to raise rates further. Concerns about the banking sector have forced the ECB to adopt a more cautious tone in its communications, but recently those concerns seem to have receded. Another rate hike at the May meeting looks like a done deal, but the size of the move remains an open question. Market pricing is leaning toward a 25 basis point rate hike. But another inflation report and GDP data will be released before the May meeting. Also, some prominent European banks are due to report earnings this week, including UBS, Deutsche Bank, Santander, and Barclays. The first quarter has been very turbulent for banks after the collapse of two regional US lenders last month and the dramatic takeover of Credit Suisse by rival UBS. As a result, the value of European banks fell by nearly $180 billion at one point. The sector has since recovered, but its value is still $70 billion less than before the collapse.

UK consumer confidence rose from 49 to 30. The latest report showed that investors should not expect a quick recovery in retail activity, but given other economic data (labor market, inflation, GDP, manufacturing activity), the UK economy is likely to avoid a technical recession in the first half of the year. The Bank of England is preparing for another 25 basis point rate hike.

Oil prices fell about 5.5% last week, the worst five-day decline since mid-March. But analysts still believe oil prices will rebound ahead of the summer as demand rises and supply may fall short, given that crude inventories are low and OPEC+ announced a surprise cut last month amid waning global growth prospects. If WTI crude oil prices fall to $75 or below again, it could cause OPEC+ to be unhappy again. The need for oil at or above $80 is crucial to OPEC+.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) added 0.09% for the week, China’s FTSE China A50 (CHA50) decreased by 0.41% for the week, Hong Kong’s Hang Seng (HK50) was down by 1.47% for the week, India’s NIFTY 50 (IND50) lost 0.05%, and Australia’s S&P/ASX 200 (AU200) fell by 0.42% for the week.

In 2023, China and other emerging markets in Asia saw the biggest drop in export growth due to weakening global demand. When economies reopened, trade growth began to slow. The pandemic led to a skew in consumption of goods, which has now shifted toward demand for services.

The new governor of the Bank of Japan, Kazuo Ueda, will hold his first monetary policy meeting on Friday, and while analysts do not expect any changes to the central bank’s ultra-blunt monetary policy, traders should be prepared for surprises. Inflation in Japan is ahead of estimates, but Ueda’s comments in recent weeks suggest that stimulus parameters remain appropriate for now.

The G7 countries are considering an almost total ban on exports to Russia. Former Russian President Dmitry Medvedev said Sunday that if the G7 decided to ban exports to Russia, Moscow would respond by canceling the Black Sea Grain deal, which allows the export of vital grain from Ukraine.

In the commodities market, futures on platinum (+8.28%), palladium (+7.06%), and natural gas (+5.01%) showed the biggest gains last week. Futures on gasoline futures (-8.21%), corn (-7.77%), lumber (-6.8%), WTI oil (-5.54%), Brent oil (-5.28%), soybeans (-3.57%), cotton (-3.29%) and copper (-2.97%) showed the biggest drop.