(CercleFinance.com) – At the start of the second half of the year, the financial markets testified to the hesitation and caution of investors. Fueled by alarming inflation figures, central banks on both sides of the Atlantic announced the -gradual- end of the ultra-accommodative monetary policies they were conducting, ‘even if it meant going through a phase of recession’, we analyze at IG France.
According to the latest estimates from the Atlanta Fed, the USA is already in recession with a contraction in GDP of 1.6% in the 1st quarter followed by a decline of 2.1% in the second…
This announcement, Friday, however, did not bend the equity markets in the United States. According to IG France, it is quite simply because ‘a significant part of the macroeconomic concerns were already well integrated into the prices’ and that ‘very strong valuation adjustments have already taken place’, like the S&P500 whose price/ profits fell from 36 in the first quarter of 2021 to 18 in recent weeks.
In this context, the corporate results season – which will begin around mid-July – will be closely scrutinized by operators. Investors will be able to concretely estimate how companies got through this delicate period, between peak inflation and risk of recession, rising commodity prices and rising wages, confinements in China and war in Ukraine…
Nevertheless, we note a slowdown in corePCE inflation (i.e. excluding food/energy) in the United States for 3 months and, at least in June, an overall and pronounced decline in the price of raw materials, including industrial metals, agricultural raw materials and energy’, notes IG France.
‘There is therefore not only bad news for the equity markets…but there should not be any significant relief before corporate publications’, concludes the analyst.