Daily Update: March 10, 2022
Start each business day with our analyzes of the most pressing developments affecting markets today, along with a curated selection of our latest and most important news on the global economy.
With about a week to go before the US Federal Reserve announces its first interest rate hike in years, markets will be watching how the economic fallout from Russia’s invasion of Ukraine and rising inflationary pressures will affect changes in central bank monetary policy.
Markets are confident that the Fed will begin its policy changes at its next Federal Open Market Committee meeting on March 15-16. S&P Global Ratings expects six rate hikes of 25 basis points each in 2022, with the first almost certainly coming next week, followed by five more hikes in 2023-24. But still high inflation shows no signs of slowing down. In February, inflation climbed year-on-year to a new four-decade high of 7.9%, according to the latest consumer price index from the U.S. Bureau of Labor Statistics, released today. The Russian invasion of Ukraine and the resulting increases in energy prices and prolonged supply chain disruptions should further inflame inflation.
“Inflationary pressures on the US economy are already intense and are expected to intensify further in the near term,” James Knightley, chief international economist at financial services firm ING, told S&P Global Market Intelligence. “It may not be until 2023 that we will see the inflation numbers come back towards the 2% target.”
The improvement in the health situation of the American economy could support strong economic conditions for this year, but the implications of the Russian-Ukrainian conflict could add uncertainty to the outlook. S&P Global Ratings now expects U.S. economic growth to decline 70 basis points to 3.2% this year, driven by policy developments and rising energy prices and limited effects from the global slowdown. Russian growth. In particular, inflation could jump to 6% by the end of the year.
“The height of the Fed’s policy rocket will depend on inflation dynamics and the economic fallout from the Russian-Ukrainian arms dispute, with a 50 basis point (bp) rate hike on the table in March” , said Beth, chief economist of S&P Global Ratings. Ann Bovino said in a March 4 report. “Yet, based on a strong labor market and soaring prices, it is virtually certain that the Fed will “take off” in March with an increase of 25 basis points. This will be the first interest rate hike since 2018 and the first of six rate hikes we are considering this year. »
“We now expect the US Federal Reserve to begin normalizing monetary policy sooner and faster than originally expected. This reflects higher and more persistent than expected inflation, with greater demand-side component requiring policy responsesaid Paul Gruenwald, chief global economist at S&P Global Ratings, in an abbreviated global macroeconomic forecast on March 8. year.”
The energy and commodities markets have been particularly affected by Western sanctions against Russia. Already high prices have skyrocketed and are should continue to increase. Reference oil prices hit their highest level in 14 years this week, rising above $130 a barrel on ICE Brent crude futures on March 7, according to S&P Global Commodity Insights. Some market participants warned oil prices could climb to $175 a barrel if the Russian-Ukrainian conflict continues to affect the world economy due to one of the largest energy supply shocks in history, while Russia has threatened that sanctions could force oil prices above $300 per barrel. S&P Global Ratings thinks prices will remain high in the short term due to the Russian-Ukrainian conflict remains the biggest risk to oil and gas prices.
Fed Chairman Jerome Powell told the U.S. Senate Banking Committee on March 3 that every $10 increase in the price of a barrel of oil typically raises inflation by 20 basis points, according to S&P Global. Market intelligence.
The US yield curve continued to flatten ahead of the next Fed meeting. The spread between two-year and 10-year Treasury yields narrowed from 160 basis points in March last year to just over 20 basis points as of March 8, and Spreads this low are often seen as an indicator of recession, according to the S&P Dow Jones Indices. .
“Although higher rates are generally considered negative for risky assets, the early stages of a monetary tightening cycle have hasn’t been disastrous for the US stock market historically. However, while the overall market may be doing very well, the same may not be true for the various sectors and factors that make up a broad benchmark like the S&P 500,” said Benedek Vörös, Director of index investment strategy at S&P Dow Jones Indices. in a March 8 comment. “The general conclusion of our analysis is that, for both sectors and factors, the fact of a rise in interest rates often played second fiddle to exogenous forces, like a speculative bubble in dot-com stocks. While the activities of the Federal Open Market Committee are undoubtedly important to relative factor and sector returns, an excessive focus on monetary policy at the expense of the broader economic and market environment could mislead market participants when assessing the outlook for the coming year.
Today is Thursday, March 10, 2022and here is today’s essential intelligence.
Written by Molly Mintz.
Economy
Ukraine conflict divides Asia’s energy haves and have-nots
The rapid events of the Russian-Ukrainian conflict are dividing Asia into energy haves and energy have-nots, havens and no havens. The most obvious effect is in the spike in oil prices. This divides countries that export oil and coal and those that rely heavily on energy imports. S&P Global Ratings also believes that increased market risk could draw capital out of emerging Asian markets, affect currencies and increase funding costs. Large economies attract investors seeking safety, as evidenced by the stability of the yen and renminbi against the euro.
—Read the full report of S&P Global Ratings
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Capital markets
Banks face possible loss of Russian businesses amid Ukraine crisis
Foreign banks with operations in Russia face the prospect of losing their investments in the country as international tensions escalate following Russia’s invasion of Ukraine. The French banking group Societe Generale SA, the Austrian Raiffeisen Bank International AG and the Hungarian OTP Bank Nyrt., which have some of the largest exposures to Russia among non-domestic lenders, have decided in recent days to assure investors and to analysts that they could absorb the potential loss of their Russian units without significant threat to their financial stability.
—Read the full article from S&P Global Market Intelligence
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International trade
China Data: Independent Refinery Feedstock Imports Fall 20% Monthly in February
Raw material imports for China’s independent refineries fell 19.6% on the month to a four-month low of 13.17 million tonnes in February, according to the latest data compiled by S&P Global Commodity Insights on March 9. . Raw material imports included crude, bitumen mix and fuel. oil. Imports of pure crude, which uses crude import quotas, fell 26.1% from January to a six-month low of 11.3 million tonnes in February, the data showed. The drop in imports in February was largely in line with market participants’ expectations. Independent refineries, mostly based in Shandong, cut throughput during Lunar New Year and the Beijing Winter Olympics, all of which took place in February.
—Read the full article from S&P Global Commodities Outlook
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ESG
ESG Investors Turn to Nuclear Energy After EU Green Label Award
European ethical investors may soften their stance on nuclear power after the carbon-free technology was recognized by the EU as a sustainable business. Nuclear will join the EU’s green taxonomy next year, potentially easing investor concerns over whether it should be considered environmentally friendly. The move could in turn open new sources of funding for European nuclear operators, such as Electricité de France SA, or EDF, and Fortum Oyj, as the industry faces up to €550 billion in investment needs until 2050, according to EU forecasts.
—Read the full article from S&P Global Market Intelligence
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Energy and raw materials
OPEC+ posts biggest output gain in 7 months, but still misses targets: S&P global survey
OPEC and its allies posted their biggest monthly increase in crude oil production in February since July 2021, but the 19 members with quotas still fell to 764,000 bpd from their collective targets, according to the latest survey. S&P Global Commodity Insight. The 13 OPEC nations increased output by 480,000 bpd from January, pumping 28.67m bpd of crude, while their nine non-OPEC partners, led by Russia , produced 14.07 million bpd, up 80,000 bpd, according to the survey. , with many members recovering from disruptions and technical issues.
—Read the full article from S&P Global Commodities Outlook
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Technology and media
Google may boost cloud cybersecurity mergers and acquisitions with $5.4 billion Mandiant purchase
Google LLC’s proposed acquisition of a cyber defense service provider could spur a new wave of M&A activity in the cloud cybersecurity space. On March 8, the Alphabet Inc. unit agreed to acquire cybersecurity firm Mandiant Inc. for $23 per share. The all-cash transaction is worth approximately $5.4 billion, including Mandiant’s net cash, with a gross transaction value of approximately $7.3 billion. Google hopes the Mandiant deal, which is expected to close later this year, will enhance the range of security operations and consulting services offered by Google Cloud, which remains a key market player amid strong demand for services. cloud.
—Read the full article from S&P Global Market Intelligence
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