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Oil and Stock Indices Feel Economic Pressure

Miguel A. Rodriguez
Miguel A. Rodriguez
29 June 2023

The signalling of interest rates staying higher for longer in the US and the prediction of a longer recession in Europe have put pressure on indices, while oil is being influenced by global economic slowdown and a failed Russian coup.

US indices slow as rate hikes seep in

Fears that the Federal Reserve's (Fed) aggressive monetary tightening will harm the US economy caused US indices to start the week off somewhat weaker.

Last week, after Fed chief Jerome Powell reiterated the Fed's commitment to keep raising interest rates to combat the country's still-high inflation, the most recent stock market surge came to an end.

Most Federal Open Market Committee (FOMC) members anticipate at least two additional quarter-point rate increases by the end of the year, and they anticipate that rates will remain at their current levels for a considerable amount of time. Previously, rate reductions towards the end of the year were factored into the interest rate curve.

A longer recession in Europe could be in the cards

After the release of the IFO data in Germany, which forecasts a longer recession with declining exports and domestic demand, the situation in Europe has not significantly changed. To a large extent, this poor data is driven by the slowdown in China and the rate hikes by the European Central Bank (ECB), which are anticipated to continue in the near future.

The German DAX index lost steam and fell for the sixth consecutive day, moving away from the maximum levels reached in the middle of this month. Geopolitical uncertainties have also dampened global sentiment after an unsuccessful uprising by Russian mercenaries over the weekend which sparked worries about President Vladimir Putin's stability and a potential disruption of Russian oil supply.

Demand for oil forecasted to increase as pressure builds

The University of Michigan Consumer Confidence Index, Durable Goods Orders, Personal Consumption Expenditure Price Index (PCE), and a speech by Jerome Powell on Wednesday will all be available to investors this week.

Despite the fact that OPEC+ anticipates a rise in demand for crude oil and an increase in consumption for the coming year, the price of oil is still declining. The slowdown in the world economy, particularly in China, which is the largest importer of oil, is inconsistent with the upbeat assessments of oil producers. 

DMO graph 27.06.2023.png

Germany 40 monthly chart. Sources: Bloomberg, Reuters 

Key Takeaways

  • US indices start the weak off weaker as more rate hikes seen in the future 
  • IFO data in Germany predicts a longer recession with falls in exports and domestic demand 
  • The German DAX index falls for six consecutive days 
  • Global sentiment dampens after failed Russian coup 
  • Oil is under pressure as concerns about supply and demand mount 

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Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.