• Markets unsettled as forecasts for a mild US recession unnerve investors
• Better than expected China exports fail to significantly lift the mood.
• The UK economy stagnates in February amid the pain of public sector strikes
• New era for streaming wars as Warner Bros unveils May launch for its Max service
• Ray of hope for FTX creditors as $7.3 billion is recovered in cash and crypto assets
By Susannah Streeter, head of money and markets, Hargreaves Lansdown.
The Fed forecast for a mild US recession has unsettled markets, with concerns rising about the worsening economic picture in the world’s largest economy. Chinese export data has provided a ray of light, showing a larger rise than expected, but this evidence of a faster post-pandemic recovery has failed to significantly lift the mood. The worry is that the sharply higher demand for Chinese electric vehicles, batteries and solar panels could wane as key Western markets grapple with downturns and spending slows.
The UK economy is flatlining amid the pain caused by the public sector strikes which have hit the economy. Although there are pockets of retail resilience which helped consumer facing services input grow by 0.4%, it wasn’t enough to offset sharp falls elsewhere as teachers and civil servants walked out. The armies of striking public sector workers have stamped out the signs of green shoots that had been emerging in January and before the chill winds of the banking crisis blew up in March. Industrial strife is piling on pressure just when the economy needs it the least, as stagflation takes hold, and this will put the government under extra pressure to come up with resolutions.
Although headline inflation is coming down in the US, the stickiness of core prices mean the Fed is still in a jam and although a pause is still expected in the months to come, it’s looking more likely that rates will stay higher for longer than some investors had expected. But we have not yet seen the full repercussions of the banking crisis which erupted. As credit conditions, as expected, are tightened up and loans are harder to come by, fresh disinflationary forces will be unleashed which if stronger than forecast risk making a recession deeper. The worry about overtightening is clearly playing on minds of Fed policymakers with a number voting to press pause on hikes at the last meeting. It looks like it’s now a closer call as to whether the Fed will hike rates next month, and there will be a close eye trained on Friday’s retail sales figures to assess just how fast consumer resilience is fading.
Streaming wars are set to intensify with the launch of the long- awaited new streaming service from Warner Bros, combining output from its raft of brands. Warner Bros is hoping a combination of HBOs scripted series, reality TV from Discovery and new creations based on super-popular series like Harry Potter and Game of Thrones will help it keep up with the pack. But shares fell back, with investors underwhelmed at the offering, while rival firms also came under pressure with yet another competitor entering the market. Streaming ventures are expensive, with the fresh content needed to keep eyes on screen and stop the drift away to rivals requiring constant flows of cash.
There is some solace for FTX users and creditors still awaiting the return of their money from the collapsed exchange. $7.3 billion has now been recovered in cash and liquid crypto assets, an increase of more than $800 million since January. It’s thought to owe its 50 biggest creditors around $3.1 billion. The total list is very long, from large Wall Street banks and government agencies to hotel chains, law firms, media companies, charities and even a garden centre in the Bahamas, highlighting how the collapse of the exchange had repercussions far outside the crypto sphere. Restarting the exchange is now being considered, which could involve swapping debts for a stake in the newly formed platform, but the discussions are still in the early stages. There is still little relief yet in sight for users, who are still unable to access their digital holdings which have been locked away since the crypto house of cards collapsed into bankruptcy and there is still no timetable yet laid out for when funds could be withdrawn. Only in Japan have customers been able to make withdrawals, thanks to stricter crypto regulation, which underlines the need for much tougher rules elsewhere.