global market: 5 global market themes for the coming week

Central bankers meeting in the United States, Japan and Britain must distinguish between rising inflation and heightened risks to the economic outlook resulting from Russia’s invasion of Ukraine.

Emerging markets, from oil importer Turkey to sanctions-hit Russia, may also need to step up measures to protect their economies from the crisis.

Markets should finally get a long-awaited interest rate hike from the Federal Reserve. With inflation nearing 8%, the U.S. central bank is expected to wrap up a meeting on Wednesday with a quarter-point rate hike, its first hike since 2018.

A bigger move is no longer expected as Russia’s invasion of Ukraine has pushed up commodity prices and heightened uncertainty grips the markets.

So far, market volatility has done little to change the view that the Fed will grit its teeth and raise rates at a brisk pace to get inflation under control, even though it may hurt to economic growth.

The Bank of Japan, meeting on March 17 and 18, finds itself with little room for manoeuvre. The war is exacerbating inflation but also hurting an economy still hampered by COVID-19 curbs. The dovish BOJ cannot tighten policy at this time, but also has no room to ease it, as stimulus is already maxed out.

The Bank of England is expected to raise rates to 0.75% on Thursday, its third hike since December.

But as inflation crosses double target, investors no longer expect a 0.5% rate hike, but will be watching the bank’s assessment of the impact of the war in Ukraine. on political prospects.

Soaring commodity prices, spurred by the war, mean higher inflation that the BoE will have to counter with even tighter policy. But the economic blow of the crisis must also be taken into account.

As economists warn that UK households face the worst drop in living standards in decades, crucial labor market and income data are also out on Wednesday.

1970s AGAIN?
Soaring oil prices to 14-year highs near $140 bolsters the argument that the 2020s could look like the 1970s.

Note the similarities: a geopolitical event that triggered an oil price shock, runaway inflation that central banks were slow to respond to, and risks of an economic downturn. Banks raise inflation forecasts and drastically cut GDP estimates; ABN AMRO estimates that the energy and commodities shock could last for a year.

But there are also differences: organized labor is less able to lobby for higher wages, while major central banks are inflation targets. So far, most are sticking with the rate hike plans.

But their work is becoming increasingly difficult due to soaring fuel and food prices. And if we talk about fuel ration surfaces, the comparisons with the 1970s will be all the stronger.

Economic stability, China’s top priority, is under threat as Beijing tries to maintain ties with Russia and limit the fallout from the war.

Sino-Russian trade has risen sharply this year, but the gains would be wiped out if economic ties with the West turn sour – the United States has warned it could penalize Chinese companies that boost trade with Russia.

And the darkening global economic outlook adds to months-long strains for Chinese factories due to global supply chain issues.

Data for the coming days will be closely monitored. They include total social finance figures, a large measure of credit in the economy which hit a record high last month, and growth in bank lending.

China is already opening the monetary taps as top leaders stress the need for stability. This should continue.

For some developing economies, soaring commodity and energy prices are a boon. But for others, they are a new headwind.

Turkey’s central bank, faced with inflation above 50%, increasingly expensive energy imports and a fall in Russian tourist receipts, meets on Thursday.

Brazilian policymakers who have already raised policy rates by almost 10 percentage points in the past 12 months are meeting on Thursday. Indonesia sets the rates on the same day.

The Russian central bank is in the most difficult situation. Having more than doubled the key rate to 20% following the invasion of Ukraine, it meets on Friday. Annual inflation topped 10% in the week of March 4, but the deepening economic recession is severely limiting his options.

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