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Recession Fears Pull Markets Lower; Australia, Canada Suffer

U.S. stocks went down further on Tuesday as investors processed economic warnings from major banks and the implications of impending Feds policy. Australia’s Q3 GDP came lower than expected, but despite the weak GDP, the Australian dollar remains stable. Elsewhere the BOC is expected to review upwards the overnight rate.

Tuesday’s stock market decline added to the losses from the previous session as recession worries gripped Wall Street.

The Nasdaq Composite fell 2% to conclude at 11,014.88, while the S&P 500 lost 1.44% to end at 3,941.26. To end the day at 33,596.34, the Dow Jones Industrial Average lost 350.76 points or 1.03%.

5-Day S&P 500

5-Day S&P 500

Stocks continued their downward trend from Monday, with the S&P falling for a fourth straight day and seven consecutive negative trading sessions. The Dow has lost more than 830 points over the past two days thanks to Tuesday’s developments. 

Cumulatively, the S&P is down 3.2% this week after Tuesday’s losses, and the Nasdaq is down 3.9%.

While Europe’s Stoxx 600 ended the day 0.6% lower in Frankfurt, the MSCI ex-Japan index recorded 1.17% lower, its worst fall in two weeks.

The losses were led by media and bank equities, which typically suffer in recessions. When Paramount Global’s CEO warned about declining fourth-quarter advertising-income, shares fell by about 7%. 

The revelation that Morgan Stanley plans to lay off 2% of its workers, continuing the recent pattern in the industry, sent its stock plummeting. The market was also affected by growth-oriented technology companies like Nvidia, Amazon, Micron, and Meta Platforms.

Fundamentally, there seems to be another round of large layoffs this week, and that only raises the possibility that we have a hard landing in 2023 and enter a longer recession than was previously projected. 

Analysts warn that people may very likely see a minor or severe recession due to inflation and its effects on consumers.

When it meets next week, the Federal Reserve is widely anticipated to decrease its rate of rate hikes to a half-point increase. However, investors worry that a reduction in its clip won’t be sufficient to prevent the economy from falling into a recession in 2023.

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Australia’s GDP Disappointment, Savings Ratio Down

In Q3, Australia’s GDP increased by just 0.6%, falling short of both the 0.9% previous reading and the 0.7% forecast. While this quarter marks the fourth in a row of positive growth, it is also the worst of the preceding twelve months. 

We pay closer attention to the quarterly GDP since it changes more quickly than the annual GDP, which increased by 5.9% but fell short of the 6.2% prediction.

According to RBA predictions, GDP is anticipated to continue trending lower through 2024, which was recently revised lower. 

And today’s results, plus or minus a few percentage points, support that conclusion, as the numerous recent economic data points for Australia.

From 8.3% to 6.9%, the household savings ratio dropped. In the end, high inflation rates are draining savings, which is obviously unsustainable. Consumers will eventually have to quit pursuing greater pricing. 

However, for the time being, they still are, with household expenditure up 1.1%, transportation services increasing 13.9%, and lodging, dining, and bars increasing 5.5%.

In summary, Australia is still on course to slow down in 2023, and household expenditure is predicted to decline as consumers lose purchasing power and fixed-rate mortgages are converted to variable ones. 

The more pressing question going forward is how rapidly inflation might decrease or whether it would continue to be stubbornly persistent.

On the flip side, after 3Q quarter-over-quarter GDP came in below expectations of 0.7% at 0.6%, and versus the prior 0.9%, the Australian dollar has remained close to 67 cents.

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Eyes on Bank of Canada

Following the Reserve Bank of Australia’s (RBA) decision to raise interest rates by 25 basis points on Tuesday, the Bank of Canada (BoC) is the next topic of discussion today, with several desks highlighting a split opinion between a 25 and 50 basis-point Overnight Rate increase. 

However, short-term interest rate markets place a 73.1% chance of a 25 basis-point hike versus a 26.9% chance of a 50 basis-point hike at the time of writing.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.

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