Hard landing odds are going up again. That was the narrative early Monday.
It’s hard to keep track of the ebb and flow, I know. Mostly because we’re just making it up as we go along, hour by hour. We take a look at the price action, then we write the narrative accordingly. If stocks are lower with yields, it must mean hard landing odds have increased.
In this week’s first trading, European shares were down again. Not by much, but the mere prospect of a sixth consecutive losing session made for “good” headlines. A half-dozen down days would count as the worst streak since October.
The European economy is faltering, and the ECB isn’t prepared to pause the most aggressive hiking campaign in its history just yet, so hard landing banter probably did have merit.
PMIs released late last week showed a deepening manufacturing malaise, but even on the services side, things are slowing down. On Monday, an update on Germany’s closely-watched Ifo gauge showed expectations tumbling to the lowest since December.
Ifo President Clemens Fuest stated the obvious. Manufacturing weakness is “steering the German economy into turbulent waters.” Germany, you’ll recall, is in a recession. Or was in a recession. And may be headed for another one by the look of things.
“What is clear is that the optimism at the start of the year seems to have given way to more of a sense of reality,” ING’s Carsten Brzeski said. “Today’s disappointing Ifo index reading suggests the hoped-for rebound is nothing more than hope. Optimism is fading and the economy faces new growth concerns.”
The Wall Street Journal ran an entire piece last week on Germany’s troubles. “Europe’s main growth engine has become the biggest drag on its economy,” it read. “In past economic crises, Germany could rely on its factories to pull it out of any recession by tapping the world’s insatiable demand for made-in-Germany products, but a mixture of short-term and structural problems means this is no longer the case.”
You might be inclined to suggest the wholly bizarre situation in Russia would be cause for optimism across Europe, assuming you believe Yevgeniy Prigozhin’s “mutiny” was real, not some devious Kremlin ploy. Vladimir Putin is the bane of democratic Europe’s existence, so if he’s reeling, that’s good news.
But, as discussed here over the weekend, there’s the problem of stray nuclear weapons. A failed nuclear state where warlords and oligarchs jostle for position in a power vacuum could be a nightmare for humanity. The closer you are geographically to that sort of thing, the greater the peril.
BNY Mellon cited “uncertainty over global growth, policy and inflation” in explaining this week’s early risk-off tone, but the bank also alluded to the vexing quandary the world would confront in a collapsed Russian state.
“[T]he insurrection in Russia is driving questions about the Ukraine war ending faster,” the bank said, before noting that it’s also “leading to warnings of ‘be careful what you wish for.'” ‘”Loose nukes’ are part of the fear,” they added.
