Markets Could be Mispricing the US Recession and Stubborn UK Inflation

Published on 19 June 2023

Sebastian Vismara, global macroeconomist and strategist at BNY Mellon Investment Management, discusses the risks of mispricing the timeline for a US recession; the turmoil ahead for the equities markets, and when we can expect the UK’s stubborn inflation to weaken.

North America

  • Equities volumes surged last week but spreads remain wide. US Investment-grade volumes are low but liquidity is good. 
  • Primary Equities: We can expect IPOs in Health Care, Consumer staples, and Tech on Nasdaq.
  • Data this week: Housing and Jerome Powell’s second annual testimony. Noteworthy: Some activity could be driven by Options Expiries and Indices Rebalancing.
  • US axe data, which is within normal ranges, indicates a higher proportion of buying versus selling of credit.

Europe and UK

  • Equities volumes are low but bid-ask spreads are tight. Volumes in Euro Investment-grade debt rebounded compared to the week prior and spreads remain tight for the year.
  • Last week saw huge spikes in bilateral and off-exchange equities trading by the end of the week.
  • Data: UK inflation rate, PPI numbers, Retail Prices on Wednesday. The main event will be the Bank of England’s interest rate decision on Thursday.
  • EU axe data, which is within normal ranges, suggests a higher proportion of EU dealer asks versus bids of credit.
  • GBP axe data, within normal ranges, suggests much higher net selling versus buying of credit.