Increasingly pessimistic

European stock markets are poised for another weak open as much of Asia reopened on Tuesday to large declines.

Asia is flashing red as it nears the close and Europe may be facing a similarly bleak day. JP Morgan CEO Jamie Dimon didn’t hold back in his assessment of the economic outlook, adding to the warnings of the IMF and World Bank, among many others. Dimon was one of the first earlier this year to warn of far more aggressive monetary tightening and even he proved to be ultra-conservative, even if it didn’t look that way at the time.

There is growing pessimism in the markets now and with some big data points to come from the US this week, not to mention the start of earnings season with JP Morgan among those getting us underway, investors should probably brace for more volatility ahead.

Tight UK labour market making BoE job harder

The UK labour market is showing little sign of loosening, with unemployment in the three months to August falling to 3.5%. At the same time, average earnings including bonuses jumped to 6% while excluding bonuses they rose to 5.4%. That’s another sizeable increase but perhaps not surprising when firms are facing labour shortages, according to a report from CBI and Pertemps. At the same time, with inflation running at close to 10% and expected to increase further, real UK incomes remain extremely negative.

One lesson from the pandemic was that companies shouldn’t be in such a rush to let workers go as hiring them back can be difficult and expensive. While that knowledge, alongside higher wages, may help households navigate the cost-of-living crisis and impending recession, it makes the job of reining in inflation that much harder for the Bank of England. How hard that will prove to be will depend on the Chancellor’s budget in three weeks. Markets expect at least 1% of rate hikes in November, maybe more, but that may well change over the coming weeks.

The pound tumbled again after the data and is threatening to break back below 1.10 against the dollar, a move that will no doubt fuel parity debate once more.

No one panicking just yet

The risk-aversion of recent days hasn’t been ideal for bitcoin either, with the cryptocurrency slipping back below $20,000 and struggling to turn its fortunes around. It’s off more than 1% again this morning around $19,000, having spent much of the last six days in the red. Of course, we’ve become accustomed to these fluctuations and the recent sell-off has been modest in pace. No major technical supports have been broken at this stage so I can’t imagine anyone is panicking. Of course, we’ll see if the same is true after Thursday.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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