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The difficult geopolitical environment continues to weigh on the global economy: amid rising commodity prices, Goldman Sachs downgraded the US GDP forecast for 2022 from 2% to 1.75% (y-o-y). With a 20-35% probability, the country could suffer a recession in the coming year. The situation is complicated by the fact that a rate hike could lead to corporate bankruptcies and debt defaults. In Europe, the situation is equally complicated: tighter monetary policy could affect the solvency of peripheral states in the eurozone. The inability of countries to service their huge debts at higher rates could provoke another “debt crisis”.
Nevertheless, the ECB plans to accelerate the withdrawal of stimulus measures. Monthly net purchases are expected to be €40 billion ($44.5 billion) in April, €30 billion in May and €20 billion in June. Therefore, the regulator intends to complete its bond-buying program in the third quarter. Hopefully, until then the situation in the economy will improve and the decision to raise the key interest rate will not have critical repercussions.
This week, however, all eyes will be on the meetings of the Fed, the Bank of England and the Bank of Russia. Due to the war in Ukraine, market expectations, which were discounting a hike of up to 50 basis points at this week’s meeting, and another six thereafter, through the end of the year, one at each meeting in 2022, were dampened. The Fed is expected to raise rates 167 basis points this year. It is clear to the markets that the Fed will raise rates on Wednesday. The Fed is also likely to update its macroeconomic forecast table, which now calls for real GDP growth of 4% in 2022, 2.2% in 2023 and 2% in 2024.
In the case of England, the BOE is expected to raise interest rates by another 25 basis points, bringing its base rate to 0.75%. In the case of the Russian Central Bank, there is also a possibility that the regulator will raise rates again.
In China, shares of domestic companies fell on fears of an exit from U.S. stock markets. The U.S. Securities and Exchange Commission named five Chinese companies that could be delisted if they fail to meet audit requirements. They include BeiGene, Yum China Holdings, Zai Lab, ACM Research and HUTCHMED. Shares of tech giant Alibaba (BABA) also came under pressure, falling 6.68%. Shares of electric car maker Nio (NIO) fell 9.57%. Baidu (BIDU) shares fell by 12.02% and those of NetEase (NTES) posted a 3.23% decline.
In terms of macroeconomic data, we cannot overlook that the U.S. trade deficit in January increased by $7.7 billion, or 9.4%, compared to the revised December figure, to $89.7 billion. On the one hand, the increase in imports reflects the relative strength of the U.S. economy during the pandemic. On the other hand, the worsening epidemiological component, as well as supply chain disruptions, may have weakened export demand abroad. We do not rule out that the situation will only worsen due to the Russian-Ukrainian crisis. As for inflation, much will depend on developments in energy prices. In general, CPI growth and rising interest rates will have a negative impact on real consumer spending. The increase in coronavirus infections in China may also add fuel to the fire: on March 11, more than 1,100 new cases were reported in the country for the first time in two years. In fact, the confinement of the southern city of Shenzhen, population 17 million, has already been announced. In addition to Changchun, with a population of nine million, Shanghai has asked to restrict movement outside the city and Beijing has closed several areas.
