Recession risks increasing

What happened: Prominent economists like Mark Zandi, Mohamed El-Erian, and Gary Shilling have warned of increasing recession risks in the U.S. and globally. Mark Zandi puts the U.S. recession risk at 40%, while Gary Shilling expects a recession by the end of the year, predicting a 30% drop in stocks. Oil price spikes, geopolitical tensions, and elevated inflation are cited as key drivers. In the UK, a quarter of a million jobs could be lost by mid-2027 due to recession fears. Meanwhile, BNP Paribas warns that $200 oil and other scenarios could push the world into recession.

Market impact: Energy and commodity-linked sectors are benefiting from higher oil prices, but this also fuels inflation, hurting consumer spending and corporate profits. Tech and growth stocks, which led the market rally, could be particularly vulnerable to a slowdown. Defensive sectors like utilities and consumer staples may outperform. The UK's job market and consumer confidence could deteriorate, impacting domestic demand and retail sales.

What to watch next: Investors should closely monitor the U.S. GDP growth rate, due in late July, for signs of a slowdown. The Federal Reserve's policy meeting in early August may provide clarity on the central bank's response to inflation and economic growth. In the UK, the Office for National Statistics' labor market report in mid-August will offer insights into job losses and wage growth. Additionally, oil prices will remain a key indicator, with any significant retreat potentially signaling a slowdown in demand and economic activity.