** International Communique No. 332 – 6th of April 2022


Geopolitical unknowns are teaming up with persistent inflation to give rise to a possible bout of stagflation, meaning soaring prices and lacklustre GDP growth. Bond yields have risen sharply, propelled higher by Fed officials emphasising the possibility of a half-point rate hike in the coming months, if ever required. Europe’s economic prospects are particularly affected by the downturn, especially in Germany, which is heavily reliant on manufacturing and exports.

In contrast, major stock indices have staged an impressive rally since the recent low. As we head into a new week, it has become clear that the negotiations on a ceasefire between Russia and Ukraine are going nowhere, and this is now hampering the performance of those indices. A fifth round of sanctions could be agreed on by the EU after evidence was discovered pointing to the massacre of Ukrainian civilians by the Russian army.

For European equities a recovery by automotive stocks was recently featured. In other asset classes, the focus was once again on the volatility of energy prices. The price of crude oil fell by around 13% following America’s decision to tap into its strategic reserve. It was also influenced by the rising number of Covid-19 cases in China. Gas prices were more volatile, reflecting the tug of war between Moscow and Europe over the payment of gas supplies in roubles. The possibility of blocking Russian gas imports is now on the agenda.

Over in the US, the increase in hiring was seen across all industries, especially services – contributing to the addition of nearly 1.5 million jobs in Q1 2022. The job market remains tightly poised. Labour shortages have pushed up wages by 5.6% over the past year, raising fears of a price-wage spiral. But this increase is slower than inflation and, on the positive side, supports consumer morale and spending.

China’s manufacturing PMI contracted to 48.1 in March, hit by fallout from the war in Ukraine and lockdown measures enacted following the resurgence of Covid-19 cases. Apart from the March 2020 low, this metric is now at its lowest reading since 2016, reflecting weak domestic demand and falling export orders. Beijing is likely to take fresh measures to support its economy.

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