Daily Update: July 26, 2022

Start each business day with our analyzes of the most pressing developments affecting markets today, along with a curated selection of our latest and most important news on the global economy.

Living with a bear (market)

A bear market is declared when the market drops more than 20% from its previous high. Because markets go up and down all the time, labels like bearish and bullish can seem arbitrary. But a one-fifth drop is significant, whatever you call it.

We are currently in a bear market. According to the S&P Global Dow Jones Indices, on Monday, June 13, the S&P 500®, lost more than 20% of its value from its previous high of 4,796.56 on January 3. The market continued its downward trend for a few more days, until it hit a low of 3,666.77 on June 16, before rebounding slightly. A bull market will be declared again when the S&P 500® breaks above its January 3 high.

At this time, it is impossible to say how long this bull market will last, although it may be useful to compare it to previous bear markets. The bear markets associated with the bursting of the tech bubble (2000-2002) and the global financial crisis (2008) have lasted much longer than this current bear market cycle has lasted thus far.

Market watchers offered a variety of possible reasons for the emergence of a bear market – monetary tightening, the threat of recession, energy security, geopolitical uncertainty, new variants of COVID-19 – but most seem to see inflation as the main culprit.

“At this point, inflation is squarely placed as the decline of the market, as ‘expert’ market historians cite the Fed’s ‘excessive’ stimulus programs as the reason for the 40-year high rate of inflation,” said Howard Silverblatt of The S&P Global Dow Jones Indices wrote in a comment the 5 of July.

If inflation is to blame for the bear market, there may be better days on the horizon. A recent analysis compiled for JPMorgan by S&P Global Market Intelligence indicated that consumer prices inflation may cool over the next several months as supply chain issues ease and demand is weakening.

For now, inflation remains a pressing concern. The Fed and other central banks are fighting the perception that they moved too slowly in the fight against inflation. Further interest rate hikes are expected and markets increasingly feel that a a soft landing is unlikely. In the worst case, stagflation—marked by both high unemployment and high inflation—could grow.

Whether stagflation develops or inflation declines, the bear market is unlikely to end any time soon. For now, markets can settle for a melancholic nostalgia for the glory days of early January 2022.

Today is Tuesday, July 26, 2022and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy


A global recession can be avoided, but the risks are high

As 2022 dawned, the global economy was headed for a major downturn. As inflation raged, central banks accelerated the pace of monetary policy tightening, in an effort to slow aggregate demand growth and ease price pressures. Two shocks have occurred: Russia’s invasion of Ukraine on February 24 and shutdowns in mainland China in response to an increase in COVID-19 cases in March-April. These shocks further disrupted supply chains, adding to cost pressures.

—Read the article by S&P Global Market Intelligence

Access more information on the global economy >

Capital markets


APAC financial sector mergers and acquisitions set to slow further as buyers wary of big bets

Mergers and acquisitions in the financial sector in Asia-Pacific will continue to slow after the total number of transactions fell in the quarter ended June 30, as market uncertainties forced buyers to become more cautious and selective. M&A deals in the financial sector in the quarter fell to 154 from 165 a year earlier, led by a slowdown in activity in the banking and non-banking financial institutions sectors, according to data from S&P Global. Market intelligence. The ongoing war in Ukraine, rising inflation, interest rate hikes and a bearish market environment will weigh on investors’ appetite for trades.

—Read the article by S&P Global Market Intelligence

Access more information on capital markets >

International trade


India Reliance’s oil revenues hit record highs amid shifting trade flows and geopolitical tensions

Reliance Industries Ltd’s petroleum-chemicals division saw revenue hit record highs in the April-June quarter due to a shift in global trade flows following the Russian-Ukrainian conflict, a increased gas-to-oil switch and strong margins provided India’s largest private refiner with opportunities to significantly increase sales volumes. In addition, strong travel demand and declining product inventories have led to a tight global petroleum products market, opening a window of opportunity for Reliance Industries to push its cargoes to both local and overseas markets, said the company on July 22.

—Read the article by S&P Global Commodities Outlook

Access more information on global trade >

ESG


Investor scrutiny intensifies as more banks tie executive pay to climate goals

Investors are paying more attention to box-ticking attempts and bad metrics as more banks around the world start linking executive pay to climate goals. Sustainability goals are making their way into banks’ variable compensation policies, and the trend is set to accelerate in the wake of new guidance from the Basel Committee on Banking Supervision, a global standard setter for prudential regulation.

—Read the article by S&P Global Market Intelligence

Access more information on ESG >

Energy and raw materials


Listen: Can the West impose a global cap on Russian oil prices?

As Russia continues its invasion of Ukraine, the Biden administration is considering ways to starve the Russian economy of revenue, the bulk of which comes from Russian oil and energy exports. As part of this effort, the US Treasury Department has pressured European and Asian leaders to support a cap on Russian oil prices. Details on how this would be structured and enforced have been scarce, but the idea is that a price cap would allow Russian crude supplies to continue to flow to the world market, but at a price low enough that Russia derives no advantage from it. Editor-in-Chief Jasmin Melvin asked several oil market experts to weigh in on one question: Can the West impose a global price cap on Russian oil, and will that drive prices down?

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodities Outlook

Access more information on energy and raw materials >

Technology and media


Netflix ad business is a long-term game, analysts say

While Netflix Inc.’s push into advertising has captured the imaginations of Wall Street and Madison Avenue, analysts expect it will be years before the effort yields material revenue. The company provided few new details about the plan during its second-quarter earnings call, leaving analysts and investors with many questions about the execution. The slow planned rollout of the product underscores the challenge of the task even for a streaming leader, analysts said.

—Read the article by S&P Global Market Intelligence

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