Faced with the recession-inflation binomial, the crash continues on Wall Street

Faced with the recession-inflation binomial, the crash continues on Wall Street

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The floor of the New York Stock Exchange, September 23, 2022.

Inflation and recession: the cocktail is explosive for financial markets, which ended the week in a general decline, whether in stocks, bonds and all currencies against the dollar. In question, the determination of Jerome Powell, president of the US central bank, to raise his rates for as long as it takes to fight inflation (8.3% in August), even if it means risking a recession. Since March, the Fed has raised its rates five times: they have gone from zero to more than 3%, and the movement should continue until reaching at least 4.5% during 2023. Added to this is the fiscal stimulus of the British government, the threat of a recession in the euro zone and the Russian military escalation in Ukraine.

Wall Street hated, anticipating higher costs for companies and an upcoming decline in profits. Therefore, US stocks continued their progressive decline on Friday, September 23. The Dow Jones index (-1.6%) touched its lowest level since 2020, while the S&P 500 index of large companies (-1.7%) and the technology-rich Nasdaq (-1.8%), they were close to the lows reached in June. Since the beginning of the year, the correction of the three indices is respectively 18.5%, 22.5% and 30.5%.

Also read: Article reserved for our subscribers To combat inflation, the Fed raises its rates

Equities are devastated by rates, which do not stop flying, after the increase in the cost of money by the Fed: thus, the ten-year risk-free rate is now above 370% – they touched a maximum 3.82% on Friday, a record since 2010. Two-year rates soared above 4.2%, when they were just 0.2% a year ago. 30-year mortgage rates are now at 6.3%. So a real estate crash is looming in the United States, with skyrocketing real estate costs in a market buoyed for three years by free money from the Federal Reserve and the exodus of Americans to bigger homes for good reason from Covid-19. .

Faced with the risk of recession and lower energy demand, Texas oil (WTI) fell more than 5%, falling well below 80 dollars a barrel, compared to the record of 130 dollars reached in March, at the beginning of the war in Ukraine. Black gold returns to its January levels and drags behind it most of the raw materials, affected by a possible global recession: copper, which generally reflects the planet’s economy, has lost a quarter of its value since beginning of the year, despite the needs for the energy transition. Bitcoin (around $18,800) is at its lowest level since the end of 2020.

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