Written by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
Fresh warnings about the effect of aggressive rate hikes on the US economy are rattling traders again, with the oil price continuing its march downwards.
The warning from former Fed Chair Alan Greenspan that an American recession was a likely consequence of tough monetary policy has led to expectations of weaker demand, pushing the benchmark Brent Crude below $82.
The fall in the price of crude is set to weigh on energy stocks in the coming session, but provides some salve to inflationary concerns, given how higher prices at the pumps have been causing such a hit to drivers’ pockets.
On Wall Street stocks started the year on a downbeat note, with Tesla and Apple leading the pack downwards amid worries that sales will take a hit as consumer wariness rises during the downturn. The minutes of the latest Federal Reserve meeting will be devoured later, in a search for clues about how much higher rates will go, before policymakers consider pressing the pause button.
The wind is set to stay in the sails of European stocks, after more encouraging inflation data in Germany indicated prices were coming down more quickly. The Dax in Frankfurt, the CAC 40 in Paris and London’s FTSE 100 are expected to continue on a positive path, after robust performance in the previous session.
In the UK however, caution is set to stay pretty embedded in the shopper psyche as the cost of essentials like food stays elevated, adding to concerns about the prospects ahead for consumer companies reliant on discretionary spending. The latest data from the British Retail Consortium shows that although discounts helped slow price rises overall, the cost of groceries jumped again, rising 13.3% in December compared to 12.4% in November.
Fresh food rose an eyewatering 15% and finding much cheaper deals in the ambient aisles is also proving near impossible with the costs of staples like pasta rising 11%. It’s adding to worries that the inflation is still proving stubborn in some areas of the economy, indicating it may take some time for the price spiral to ease. Shoppers are cannily seeking out bargains though, by flooding to discount chains, and with the price of oil and gas retreating, consumer confidence should gradually continue to inch back upwards.