Eight consecutive weeks of decline, a sign of a global recession

Trường Lăng

June 8, 2022


Eight consecutive weeks of decline, a sign of a global recession

Trường Lăng

June 8, 2022

The contrary signals, mixed among the recovery expectations as well as the risk of economic recession in many areas are transmitted from the world financial market.

“Bear market” signal

The US stock market rebounded strongly in the May 23 session after it was falling for 8 consecutive weeks. The bottomed demand increased in the plunging stocks as these stock codes have been sold off for along time.

The US stocks fell into “bear” market from the session of May 20 with a drop of more than 20% from the record peak before. The anxiety spread crossing the community of investors.

The history shows, the US stocks have fallen into the bear market since World War II for about 14 times, the risk of the US economy falling into a recession accounts for more than 50%, the slow growth is on the other.

And then, the US stock markets fell further 12-18% or 5-8% respectively.

There was a recovery session in the US stock market this time. However, experts from CNBC said that it cannot be forecast how long the three main US stock indexes can maintain.

These indexes were maintained by the investor before, they welcomed the slight rallies during this year’s volatility but they wondered when the rally would be strong enough to reverse the downtrend lasting many months. 

Bank stocks are in the most cash flow attraction group thanks to the interest rates of raising tend in line with the interest rate raising plan of the US Federal Reserve (Fed). Lending is boosted to help this group maintain their profits.

JPMorgan shares jumped 6.2% in one session after the bank forecast showed that the key profit target was earlier than planned. Citi shares also rose 6%, as 10-year US Treasury yields rebounded from last week. Shares of Wells Fargo and Bank of America were up more than 5%.

The US stock market was also more positive after the US President Joe Biden said he was considering to relieve tariff on some products imported from China. This decision reversed the policy adopted by the former Donald Trump.

Investors are waiting for more clear bottoming signals after the US stock market sale rate was sharply raised after the 6th month. Nasdaq Composite Technology Index is even down 28.8% compared to the record high rate.

Now, inflation is still a worrying factor. The consumer price index is at a 40-year peak zone in the US. Inflation will likely erode corporate profits and reduce consumer spending power.

Early said Fed Chairman Jerome Powell, Fed would continue the tighten policies until the state of the US financial health returned to the appropriate rate. Fed Chairman also said, after the past 2 times of raising interest rate, Fed is likely to raise interest rates by 50 basis points at its next meetings (in June) if economic conditions are similar to the present.

Mr. Powell reiterated his commitment to bring inflation closer to Fed’s 2% target and warned that might not be easy and could come at the expense of an unemployment rate of 3.6%, higher than the lowest rate since the late 1960s.

The world economy faces the great challenges

Like the United States, the world economy is in a very difficult period when the prices are escalating, supply is interrupted, geopolitical tension is increased and the production and business activities are stalled in many places.

Europe is experienced in inflation spreading to everywhere. Up to 9 countries in this region are experienced double-digit inflation, above 19% inflation in some countries like Estonia. Inflation in the European Union (EU) this year is forecast to reach 6.8% due to the impact of Russia-Ukraine war and economic stagnation.

The expectation of economic recovery after COVID-19 pandemic of EU member countries became dim.

Like the US, EU countries and the UK were forced to raise interest rates to control inflation despite they were facing the risk of an economic recession. The recession status became clearer than ever when GDP growth in the first quarter of 2022 was close to 0%, while inflation was still increased.

The European Commission (EC) forecasts EU economy will grow by 2.7% this year. Before the current situation, this prediction is, however, also doubted by many ones.

Meanwhile, the US inflation remains around a 40-year peak with the consumer price index (CPI) in April increased by 8.3% compared to the last year.

Source : VietNam.Net ( Premium)

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