Market storm intensifies as virtually no asset class is spared

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Global markets came under more pressure on Friday as the mood on the global economic outlook soured. Equities, currencies, other asset classes, practically nothing has been spared in the economic cyclone which has intensified in recent weeks. Here’s what economists and analysts have in mind for this trading day:

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Boiling markets

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The indices are down across the board in Friday’s trading. The S&P TSX Composite Index fell more than 2.5% in the first hour to 18,516 as energy stocks fell to their lowest level in more than two months and oil prices lost 6%.

US markets are not faring any better. The S&P 500 fell about 1.7% to 3,692 as of 10:40 a.m. ET and the Dow Jones fell 1.5% to 29,616. Goldman Sachs Group Inc. cut its target for the S&P 500 index from 4,300 to 3,600 by the end of the year, indicating a shift in interest rate expectations and their impact on equities.

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Friday’s turmoil began in European and Asian markets.

“There is no appetite for risk this Friday morning as stocks across Europe fall as much as 3%, led by the FTSE MIB,” BMO economists Jennifer Lee and Shelly said. Kaushik in their morning note. “Asia was not spared as the region sold off significantly, with the Hang Seng down more than one percent, while the CSI 300 held its losses at 0.3 percent. «

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Bank of America Corp. strategists point to a « cash is king » attitude among investors who are displaying the most pessimistic attitude toward markets since the 2008 global financial crisis. Cash inflows reached $30.3 billion while cash outflows Global equities reached $7.8 billion, bonds lost $6.9 billion and gold investments fell $400 million in the week to September 21, according to the bank.

Retail crisis in Canada

The latest Canadian retail data was also disappointing on Friday, with sales falling 2.5% in July as lower gasoline prices contributed to the decline. As Canadians saved money on fuel, the financial windfall didn’t go to other retailers, Desjardins managing director and head of macro strategy Royce Mendes said in a note after the data. . Mendes also said the modest 0.4% rebound in nominal retail sales that Statistics Canada estimates for August could point to higher volumes.

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« Having said that, the trend is clear, consumers are cutting back, » Mendes said. « The slowdown in consumption is exactly in line with what the Bank of Canada is trying to put in place with its rate hikes. »

The Bank of Canada has sought to rebalance strong demand with limited supply by embarking on an aggressive rate hike cycle this year, which has so far raised the policy rate by three percentage points.

The pound plunges

Across the pond, sterling fell 2% to crash below US$1.11 for the first time since 1985, adding to the pressures the currency faced earlier in the week. The plunge came as new British Prime Minister Liz Truss introduced the country’s biggest tax cuts since the early 1970s.

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Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said recent weakness in retail data has heightened fears of a deep and prolonged recession, contributing to the pound’s grief.

The Bank of England raised its benchmark rate by 50 basis points to 2.25% this week, which Schamotta said ahead of the decision would help widen interest rate differentials against the pound.

Don’t fight the Fed. Do not do it

US Federal Reserve Chairman Jerome Powell heeded his Jackson Hole comments in late August that the central bank was willing to sacrifice economic growth if it meant eradicating decades-high inflation. The Fed’s 75 basis point hike earlier this week showed that Powell wasn’t bluffing, a detailed economist David Rosenberg of Rosenberg Research & Associates Inc. was quick to point out.

« What part of ‘don’t fight the Fed’ don’t the markets understand? » Rosenberg wondered in his Friday morning note to clients. « Chair Powell’s message is clear: The Fed really means it this time, and it’s not a kitty or a joke. »

« Whether the Fed is ultimately right or wrong in what it does, it controls the ‘magic lever,’ so investors should be prepared for further economic and market weakness, » Rosenberg added.

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