Bank of America provides optimism for second half of 2022

GB Market Commentary 15/08/2022

by Marcus Sotiriou

Bitcoin fell this morning to around $24,000, after struggling to overcome $25,000, which is proving to be a key level of resistance.

After last week’s inflation data which came in lower than expected, hence causing a rally in crypto and stocks, there is now a risk that consumer spending could plummet throughout the second half of the year, hence resulting in earnings being contracted. However, data shown from Bank of America suggests consumer spending is not decreasing. This is shown by online retail spending still being positive year over year, leisure services spending uptick and median account balances remaining significantly elevated relative to 2019.

Many are also concerned about consumer loans on credit cards reaching all-time highs, shown by the Federal Reserve’s most recent data. This could lead to an increase in bankruptcies in the second half of this year. If we look at debt service payments as a percent of personal disposable income though, which is remarkably below levels from the dot com bubble, the Global Financial Crash and 2020, we can see that consumers are actually in a healthy position.

This data tells us that consumer spending could remain positive throughout the second half of this year, which is what markets want to see, in addition to inflation declining. Retail U.S. sales data is released this Wednesday at 1.30pm UK time, as well as FOMC meeting minutes at 6pm UK time on the same day. Some believe the Federal Reserve has already pivoted on their stance towards becoming more accommodative, but both of these events will give the market a lot more certainty around the Federal Reserve’s policy going forward.