There are a number of seemingly confusing signals here. If petrol prices are falling, then energy stocks shouldn’t be rising: energy companies generally show fairly consistent PE Ratios, barring discovery of new energy deposits. Also, if there are signs of market recovery, tech stocks would be leading the charge. Given that consumer staples and health care stocks – both of which are “recession favourites” – have been lagging in the past week, this might mean that the market expects the inflationary phase of the inflation/recession cycle to continue.
Lower earnings from rising wages, ongoing staff cuts across large companies and falling real estate prices from steadily weakening demand confirm that Q3 is poised to be a period of negative growth in the U.S., which strengthens the case for calling out the current situation to be a recession. While the US Federal Reserve continues to promise steady rate hikes in small increments (which is keeping the stock market buoyant), rising energy stock prices indicate a forward-looking expectation of rising petrol prices which means a continuation of the year’s trend of decreasing household savings.
Meanwhile, the Eurozone isn’t in recession as per the “standard definition”: in Q2, the region’s Gross Domestic Product (GDP) rose by 0.7%. However, inflation in the year till July was up by 8.9%, higher than the 8.6% registered in June. This is primarily on account of a 40% rise in energy prices and a 10% increase in food prices, owing to the region’s historically heavy reliance on Russia and Ukraine to meet these material requirements. The technical “safe” rating is being attributed to “reopening effects” on the region’s hospitality sector after movement restrictions due to the pandemic were lifted and tourism increased. Germany is the worst-impacted country in the Eurozone with inflation in food prices alone in the year till July reaching 14.8% (up from 12.7% in the previous month).
