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First the music changed, now the dance of the markets changes

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The wave of heavy selling in global markets shows that the world economy is not doing well.

On the one hand, there is high inflation and interest rates are raised against it and the money tap is tightened, on the other hand, growth rates go down accordingly.

The world was caught between rising inflation and growth and forced to make a choice. Central banks, which appear for now, have preferred to reduce inflation. In parallel, the possibility of stagnation in economies has increased considerably. This is the apparent economic reason why oil prices also fell 10 percent in one day.

IMF PRESIDENT: THE POSSIBILITY OF RESSION INCREASED

➔ The IMF’s global growth forecast for this year was 4.7%. That was a pretty strong expectation after last year’s 6.1% growth, the highest in 40 years.

➔ Anyway This expectation could not be kept due to the Russia-Ukraine war, the jump in commodity prices, the rise in global inflation and the abandonment of abundant and low-interest monetary policy.

➔ The IMF cut its global growth forecast to 3.6% in April. Finally, the World Bank, the IMF’s sister institution, has estimated a growth rate of 2.9 percent.

➔ Even yesterday Christalina Georgeiva, managing director of the IMF Explaining that they will move on to the third revision of their growth forecasts, he said:

“The global outlook has deteriorated significantly since the April update. The likelihood of a 2023 recession has increased, this possibility can no longer be denied. The IMF will update its growth forecast of 3.6% for 2022 downwards for the third time ”.

Aftershocks of the sales surge

➔ As a result, global markets experienced a strong sell-off on the first trading day of the week with full participation with the US. The aftershocks of this wave continued yesterday.

➔ The minor price movements of Tuesday occurred yesterday. Once again, it was oil that fell the most, and this time The price of the Brent type has seen the psychological limit below $ 100.

➔ The dollar continued to strengthen by half a percentage point. The dollar index reached its most valuable level in the last 20 years with 107,067.

➔ As a result, the euro depreciated by 0.8 percent. The euro / dollar parity fell to 1.0162. Parity is almost equal. We can see the situation where the dollar and the euro are equal in a short time, even at any time.

THE IMPORTANCE OF DATA ON TOMORROW’S WORK

➔ In this regard, the US nonfarm employment data, which will be announced tomorrow, has the importance of influencing not only the dollar but almost all asset prices.

➔ Because as expected An employment increase of around 295,000 or more in June will force the Fed to raise interest rates by 75 basis points. Therefore, this situation could further strengthen the dollar.

➔ If the employment rate is significantly lower than expected, say 250k or less, the Fed rate hike on July 27 could move towards 50 basis points, and this could slow the pace of the dollar.

➔ Although high market volatility has subsided, calm and equilibrium have not yet been achieved. It means that the sales are not over, others could arrive.

WHERE IS THE TOUCH OF CHANGE?

➔ These sales, which coincided with the beginning of July, are attempts to adapt to the transition from the environment of abundant and cheap liquidity to the environment of shrinking liquidity and rising interest rates. If there is no cheap money, it is time to make profits and deleverage from the riskiest financial assets.is.

➔ Also, if the world economy first shrinks 3.3 percent, then grows 6.1 percent and falls to 3 percent the following year, that’s dazzling enough, even more.

➔ If a recession is expected next year, you need to prepare for the stormy period that will pass until inflation eases and have some liquidity support ready.

“When the music changes, so does the dance”. This is the change that the financial markets are going through. Central banks have changed the music they play in the financial markets since 2008.

From now on, all changes to the book of accounts and positions will be made based on low liquidity, rising interest rates and low inflation. We saw it in the big wave of sales in early July.

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