Market Report: signs the end of a US bear market has arrived

by | Aug 9, 2022

  • Core US markets within touching distance of exiting correction territory, fears of recession fading
  • Spanish heatwaves to drive up the cost of olive oil
  • Potential revival of the 2015 Iran nuclear accord sees Brent crude prices ease

 

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“The publication of strong jobs numbers on Friday in the US has helped raise hopes a recession could be avoided. The Dow Jones industrial average, which has been trading since 1896, has been seen edging closer to exiting bear territory. Across at the tech-heavy Nasdaq, which has been in its longest bear market since one that ended back in 2008, came within a whisper of ending the trading day in bull territory too. The wider read across here is that a more spritely market suggests expectations for future earnings are more positive. So while it doesn’t indicate recession has been wholly avoided, it does indicate that the corporate outlook, and therefore consumer resilience, is perhaps looking better than it was.

The price of olive oil, a cupboard staple, is set to get more expensive as Spanish heatwaves hit production. This is expected to feed through to higher prices within the next three or four months when companies renew their contracts. Spain is an olive oil giant, with about 1.4m tonnes of the essential item produced last year – forecasts are as low as 1m for the current season. While this isn’t a consumer crisis on its own, customers will be disheartened to hear that yet another key ingredient is seeing its price go up. The conflict in Ukraine has already affected the availability of crops for other cooking oils, and this is yet another blow to people’s now very constrained incomes. 

The stage is set for a revival of the 2015 nuclear accord, which could potentially see increased crude exports from heavily sanctioned Iran, after the EU submitted a request to revive the deal late last night. Eyes are now on Tehran and Washington who will need to approve the move, but if this happens, it could result in a 1% increase in global supplies in six months. This means Brent crude is hovering around $96 per barrel, and there may well be further downwards pressure on prices as and when the accord progresses. The big question for businesses and customers of course, is how quickly this will feed through to lower fuel prices. It’s reasonable to expect some heat to come out the pump, but the multi-million pound question is what proportion of the decline in wholesale prices will make its way to consumers.”

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