LiveWire

US and European shares slid this morning heading to post another month of decline (the 5th since the start of the year). Central banks' firm commitments to controlling rising inflation are rising risks of a sharp slowdown in the global economy. The fact that stocks have trouble holding steady despite falling Treasury yields suggests market dynamics are changing. In this environment, having protection by using put options could reduce downside risk. 

Real GDP in the United States fell by 1.6% at an annualized rate over the first three months of the year (vs 1.5% estimates). Softer household consumption expenditure was a big drag. Moreover, the price index PCE rose 7.1%, compared to an increase of 6.4% in the previous quarter. Excluding food and energy prices, the index rose 5.2%, compared to a 5% rise in the last quarter of 2021. Although this is backwards-looking data, it is still closely watched as it confirms the ongoing pressure on prices.

The consumer prices in Germany rose 7.6% YoY. Although that is a very high number, it is encouraging to see it coming lower than expectations and the previous month's print (7.9%). Equity stocks are rallying just after the data was released 

Despite a strong week for financial markets, ETF inflows are not as strong. Investors withdrew USD10.9 billion from U.S.-listed exchange-traded funds during the week ending Friday, June 24. Year-to-date inflows have now totalled USD291.2 billion, down from USD467.9 billion at the same time a year ago. Contrarians believe that a sustained recovery may eventually result from all the bearishness, but for now, it reflects the growing fear that any bounce is simply a bear-market rally.

Expectations around inflation and recession should continue to drive markets. While quarterly portfolio rebalancing could be helping stocks this week, more meaningful positive catalysts from lockdowns in China, Russia-Ukraine, and if Biden is able to convince the Saudis to increase oil output could bring further gains for stocks. On the flipside, unexpected shocks such Russia blocking gas exports to Europe (would hurt Russia just as much), or renewed spike in oil or inflation expectations could bring renewed pressure to stocks. In couple weeks, FANGs earnings will be key to offer further clues to tech investors about the earnings picture and outlook given the more challenging environment. In the meantime, the source of the selloff (inflation/central banks, commodities, lockdowns, war, supply-chain bottlenecks) should remain center stage. On a technical picture, around 4'000 is the next major resistance on the S&P500.