All roads lead to recession. 

Despite encouraging headlines around China loosening its covid policies, US stocks faded aggressively from earlier strength after harrowing consumer confidence data poured ice water on the month-end relief rally. For context, that is in the region it was printing in the 2015/16 downturn.

It is a tough market to navigate these days: yesterday’s market was trading bad data equals good news; today, weak data signals all roads lead to recession.

And with consumer confidence hitting multi-year lows, dragged down by high gasoline and other inflation price pressures, walking in to see Brent Crude testing $114 is providing more gnarly inflationary proof is still in the pudding.


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I expect the earnings downgrade dam to burst, but the market reaction will determine whether the cuts are enough.

Short-sellers were waiting for verification that the US consumer was faltering. The dire sentiment data suggests weaker consumer demand will intensify an earning recession that could trigger new lows. So, the extent to which the recent US and Eurozone equity market upswing marks the cycle low or is a bear market rally depends primarily on downside earnings risks from the economy and the latest data should provide a very sobering thought

With the macro backdrop leaning inflationary, led by soaring oil prices, the headwinds for equities markets, namely central bank tightening, will remain in place. You have this whirligig action across markets underpinned by energy price moves. Oil prices leaked lower, so inflation expectations declined, and Fed tightening forecasts fell, which has helped equities bounce early in the week. Now that oil creeps back higher, it is not difficult to see how things can quickly go into reverse again.


There has been a lot to digest lately, and it does not seem headlines are about to stop anytime soon with Iran nuclear talks reportedly resuming, the G7 meeting, and cautious comments around UAE and Saudi’s spare capacity. So, the question is when will EU/US supply talks aggressively pivot to Iran or Venezuela.

Oil prices are on a gusher again, helped by reports that excess spare capacity from Saudi and UAE is not as high as previously thought; meanwhile, production disruptions in Libya and Ecuador amid political unrest could further threaten the global oil supply.

And further fuelling the rally is the Chinese government easing some quarantine rules, which could see more planes filling the tracking radars across ASEAN flight paths. Indeed, this is the first time China has done so since the pandemic’s start, which could trigger a broader walk down of restriction if the covid curve remains tame.


G-7’s underlying aim is to prevent Russia from profiting from high energy prices. But there are also domestic political pressures to deal with – all countries are facing the same backlash from their electorate on the energy cost. However, discussing price caps and understanding how it could be done are different things. Although it’s not difficult to limit the Russian oil supply, putting a price cap in is another matter especially given that limiting or ending the Russian supply in and of itself drives the oil price up.

Originally published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT