By Geoffrey Smith and Ana Beatriz Bartolo
Investing.com – Everyone thinks a recession is getting more likely. Well, Goldman Sachs (NYSE:), Deutsche Bank and Elon Musk do anyway, and more and more central bankers are talking as if they’ve made peace with the idea. The idea is also discussed in the earlier one. Relations between Russia and the West reach new heights after Lithuania closed Russian rail access to the Baltic enclave of Kaliningrad.
Here’s what you need to know in the financial markets on Tuesday, June 21st.
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1. Copom Minutes
This morning, the Monetary Policy Committee (Copom) released the figure held last week, when it raised the rate by half a percentage point, to 13.25% per year. In the document, the committee points out that consumption is growing faster than expected, with household consumption contributing positively to the country.
The high follow, with a high spread among several components, proving to be more persistent than anticipated. Inflation for services and industrial goods remains high, and recent shocks continue to lead to a strong increase in food and fuel-related components.
Inflation expectations for 2022, 2023 and 2024 calculated by the Focus survey are around 8.5%, 4.7% and 3.25%, respectively, according to the Copom Minutes. The Committee assesses that activity should decelerate in the coming quarters when the lagged impacts of monetary policy become more present.
The document also highlights that the external environment continued to deteriorate, marked by negative revisions to global growth in an environment of strong and persistent inflationary pressures. The rise in prices around the world is related to the effects of the pandemic and the advance of commodities.
For Copom, the reorganization of global production chains, already driven by the war in Ukraine, should intensify, with the search for greater regionalization in the supply chain. In the Committee’s view, these developments could have long-term consequences and translate into longer-lasting inflationary pressures on global goods production.
The ETF traded up 0.72% in the US premarket at 8:20 am.
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2. Russia-EU relations get worse
While the US was enjoying the holiday, relations between Russia and Europe deteriorated sharply. After last week’s series of gas cuts by Gazprom to its European buyers, Lithuania has stopped the transit of most goods on its territory to the Russian Baltic Sea enclave of Kaliningrad. The European Commission in Brussels approved the measure.
Russia called the measure “illegal” and “unprecedented” and vowed to retaliate, the Security Council said its measures “will have a serious negative impact on the Lithuanian population”.
Kremlin spokesman Dmitry Peskov told MSNBC that relations are likely to suffer long-term damage from the current crisis and declined to rule out the execution of two US citizens fighting in Ukraine who were captured by Russian representatives.
Meanwhile, the search for alternatives to Russian gas in Europe has taken two big steps forward as the Gulf state of Qatar has signed a series of deals to develop what will be the world’s largest liquefied project.
QatarEnergy said on Tuesday that the Exxon Mobile (NYSE:) will have a 6.25% stake in the North Field East project, joining others including France’s TotalEnergies, Italy’s Eni and ConocoPhillips (NYSE:), which have signed similar deals in recent days. The project – which will increase Qatar’s LNG capacity by nearly 50% to 110 million tonnes per year – is, however, expected to come on stream only in 2026.
CHECK: Quotation of the main global commodities
3. Increased risk of recession, say Goldman Sachs and Elon Musk
Recession fears are mounting, with analysts at Deutsche Bank and Goldman Sachs warning of a growing risk of economic contraction. Goldman Sachs raised its estimate of the probability of a recession next year to 30% from 15% previously, citing both inflation and the effects of the conflict in Ukraine on the world economy.
Elon Musk also told an overnight conference in Qatar that he believes a US recession is “more likely than not” in the short term. He also confirmed that he expects to lay off about 10% of Tesla’s salaried staff (NASDAQ 🙂 (SA :), or 3.5% of its total workforce.
The caveats come as more and more central bank officials speak openly about their willingness to sacrifice growth in pursuit of stable prices. Bank of England chief economist became the latest to adopt that refrain on Tuesday, while on Monday, St. Louis, , warned that US inflation expectations could become unbalanced without credible action from the Fed.
Richmond Fed President , speaks at 12 noon and , from Cleveland, will speak an hour later.
CHECK: Quotation of the main global indices
4. American stock market
The holiday appears to have lifted the mood of US stock market investors. Markets are expected to reopen comfortably higher later on amid some bearish buying by those who think the recent sell-off was overblown.
At 8:20 am, the 100 futures were up 1.77%, while the A and A futures were up 1.58% and 1.75%, respectively.
Individual actions likely to be in focus later on include Spirit Airlines after JetBlue increased its bid and finally accepted that it will have to part with more assets to get antitrust clearance for its plans. Spirit is up 12% premarket on perception that JetBlue’s offer, which is larger than rival Frontier Group’s, will now be successful.
Petrobras (NYSE:) ADRs were up premarket on Wall Street, rising 1.72% to $11.81, partially recovering from losses of 3.89% to $11.61. Vale’s ADRs (NYSE:) also partially recovered from the previous day’s drop, advancing 0.4% to US$ 14.99.
The data calendar is relatively light, with the Chicago Fed’s manufacturing survey due at 8:30 am ET and the May figures for existing home sales at 10 am.
CHECK: Real-time US stock quote in premarket on Wall Street
5. Oil extends recovery as Biden prepares tax exemption decision
Crude prices extended their rebound from last week’s sell-off amid expectations that US President Joe Biden will announce a suspension of the federal gas tax to cushion the impact of high prices on US motorists.
Biden told reporters on Monday that he expects to make a decision by the end of the week on whether to levy the tax, which currently stands at 18.4 cents per gallon.
As of 8:23 a.m., U.S. crude oil futures were up 1.57% at $109.69 a barrel, while U.S. oil futures were up 0.83% at $115.08. Newswires quoted Russell Hardy, CEO of one of the world’s biggest traders Vitol, as saying that markets are unlikely to drop much unless there are signs of a substantial “demand reduction”.