Fears of a US recession later this year gathered pace last week and the US equity market jumped by almost 7% and the Nasdaq was up some 9%. This underscores how sensitive stocks have become to interest rates and reflects a fairly modest moderation in interest rate expectations and the thought that inflation pressures would moderate with a sharply slowing economy.

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There may have also been some technical factors at play with some important indices rebalancing combined with fairly oversold markets. Most surprisingly though it was the week when Jerome Powell conceded that a recession was likely and the New York Fed estimated that the chances of avoiding a recession had decreased to 10%.

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The prospect of the lower future interest rates that that prognosis implies meant that all the tech titans that have dragged the market down so far this year led the market up with rises in Apple, Microsoft and Tesla contributing the most to gains last week. The specific catalysts that sparked this rally was weaker than expected producer activity in the United States along with worsening consumer sentiment. Commodity prices were a sea of red and the oil price is now down 8% which really explains why all of this bad news is not so bad after all.

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Iron ore prices were also down again and falls of around 5% for the local miners weighed on the local market which was only up around 2%, although missing out on a buoyant US trading session on Friday after our markets closed also accounts for much of the difference. The banks on the other hand were up strongly along with CSL and some ‘expensive defensives’ like Goodman Group, Coles and Woolworths.

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European luxury goods makers and some pharmaceutical companies also helped that market to more modest gains of 1-2%.  There were also some signs of robust pricing power amongst some corporates with FedEx up on strongholds results and cruise operators also benefitting from surging bookings.

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This mixed picture extended to bond markets which continued to be volatile but ultimately yields were down and especially in Europe which is seen to have more constrained policy options than the US. A university of Michigan estimate saw long-term inflation expectations ebb from 3.3% to 3.1%, while the equivalent bond market implied measure (the so-called 5 year-forward rate) actually been pretty steady at just over 2% per annum, heavily implying that the market still has a high degree of confidence that the inflation surge will be beaten or give way to deflationary forces in the next few years.