US stocks are declining after a weekend filled with global central bank hawkishness reinforced the message that global central bank tightening will deliver pain to households and businesses. Friday’s sharp selloff is continuing as expectations for the global energy crisis persist, which will keep inflation risks elevated and lead to a rapid deterioration of economic data.
Powell sent a short and direct message that there won’t be a Fed pivot anytime soon and that has markets positioned for further equity weakness. Investors were expecting that once the US got some ugly data, perhaps a couple of negative NFP reports, that the Fed would come to the rescue, but that might not be the case. Premature loosening won’t be happening on the first signs that the economy is slowing down quickly and that raises doubts for anyone who bought stocks earlier this month.
All about Europe this week
The ECB rate decision will show that the current inflation narrative will force them to deliver massive rate hikes that will kill growth. Over the weekend, ECB’s Rehn said their next step is a significant rate move in September and that it should be by at least 50 basis points. The latest round of ECB talk has been hawkish and that should have markets leaning towards expecting a 75 basis point rate hike.
The European Union Commissioner Ursula von der Leyen is preparing an emergency intervention and structural reform of the electricity market. Drastic measures are needed to salvage the European economy as the risks of extremely higher energy costs could trigger a severe recession. Czech officials have suggested capping natural gas used for power generation. The EU is expected to meet on September 9th and is expected to show some plan for tackling the energy crisis.
Over the weekend, Bitcoin dipped below the coveted $20,000 price point as risk aversions grew following more global central bank hawkish talk from Jackson Hole. Bitcoin is showing some resilience here as it has clawed back above the $20,000 level, despite widespread stock market weakness. Crypto traders are not used to seeing bitcoin withstand a rout on Wall Street, so this could be a promising sign. Crypto bulls will be tested here as the risk for further risk aversion is high given the trajectory of the global economy.
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