Skip navigation Scroll to top
Scroll to top

LGT Navigator: Oil prices fuel inflation and recession fears

June 1, 2022

Rising oil prices against the backdrop of the EU's (partial) oil embargo against Russia have further fueled inflation and recession fears and are once again clouding stock market sentiment. In the euro zone, the inflation rate reached another record high in May, putting further pressure on the European Central Bank (ECB) to tighten key interest rates soon.

Oil prices fuel inflation and recession fears

The EU's compromise on the oil embargo against Russia drove oil prices at times to their highest level in more than two months. On the New York Stock Exchange, the stock indices after a holiday on Tuesday, started with losses in the new trading week. The Dow Jones Industrial closed -0.67% from Friday's close at 32,990.12 points and the S&P 500 fell -0.63% to 4,132.15 points. Under pressure came mainly commodity stocks, especially oil companies such as Chevron or ExxonMobil, which is likely to be explained in part by profit-taking. On the Nasdaq technology exchange, the indices posted interim gains, but could not hold these until the end and went out of trading with moderate daily losses of around -0.3%. Thus, the tech indices closed the merry month of May with a minus of about -1.7%.

In Asia, the stock markets trended without a clear trend. In Tokyo, the Nikkei 225 traded around +0.5% higher, while the Hang Seng in Hong Kong was about -0.75% lower than on Monday. Positive news was reported from the metropolis of Shanghai, where after two months of lockdown the restrictions were largely relaxed. On the other hand, the Purchasing Managers Index for China's industry in May signaled the third month in a row a contraction, respectively, a growth slowdown. The Caixin PMI slipped from 48.1 to 46.0 points, which also roughly mirrors the government's official purchasing managers' index.

Living costs, interest rates and economic outlook dampen US consumer confidence

Meanwhile, in the US, consumer sentiment dimmed somewhat less than expected. In view of high inflation, rising interest rates and fears of recession, the consumer confidence barometer of the New York-based institute The Conference Board fell in May from 108.6 in the previous month to 106.4 points (consensus 103.6). Both the assessment of the current situation and the expectations of the private households surveyed deteriorated.

Inflation rate in the euro area climbs to another record high

In the eurozone, consumer price inflation rose again to a record level in May. Year-on-year, the inflation rate climbed to +8.1% from +7.4% in April. Analysts had forecast an increase to +7.8% on consensus. The main driver remains the skyrocketing energy prices, but the upward price trend seems to be becoming increasingly broad-based and is thus likely to put the European Central Bank (ECB) under increasing pressure to counter inflationary pressure with an interest rate turnaround soon.

In France, the cost of living rose by +5.8% year-on-year in May, the fourth month in succession. Inflation in the second-largest economy in the eurozone thus reached its highest level since the introduction of the euro in 1999. Nevertheless, the inflation rate in France is still well below that in the euro zone and in Germany, where consumer prices rose by +8.7% year-on-year in May.

Weak start to the year in France and Italy

According to revised data, the French economy contracted by -0.2% at the beginning of the year compared with the previous quarter. An initial estimate had still pointed to stagnation on a quarterly basis. Private consumption was particularly weak (-1.5%). In the final quarter of 2021, the second-largest GDP in the eurozone had still grown by +0.4%. Things were somewhat better in Italy, where GDP surprisingly increased by +0.1% in Q1. An initial survey had still predicted a decline in economic output of -0.2%. In Italy, too, private consumption weakened.

Price momentum on the US real estate market likely to weaken soon

Despite the increase in financing costs in the meantime, prices on the US housing market continued to rise on average. According to the S&P/Case-Shiller index, house prices in the 20 largest cities in the US rose by +21.2% over the year in March – the strongest increase since the start of the data series around 35 years ago. Compared with the previous month, an increase in prices of +2.4% on average was observed. However, in view of higher mortgage rates and further monetary tightening by the Federal Reserve, price momentum in the US housing market is likely to weaken soon, commented S&P.

Economic Indicators June 1

MEZ Country Indicator Last period
03:45 China Caixin PMI Manufacturing (May) 46.0
08:00 GE Retail sales (April, y/y) -2.7%
10:00 EZ PMI (May) 54.4
16:00 US ISM Manufacturing (May) 55.4
20:00 US Beige Book

 

Earnings Calender June 2

Country Company Period
FR Remy Cointreau Annual
US Broadcom Q2
US Ciena Q2

 

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.