Rising inflation and energy prices will slow global economic growth

The US stock indices closed lower yesterday amid negative consumer price index data. The inflation rate in the US reached 7.9% year on year, the highest level in the last 40 years. At the close of the stock market yesterday, the Dow Jones index (US30) was down 0.34%, the S&P 500 index (US500) lost 0.43%, and the NASDAQ technology index (US100) fell by 0.95%. Analysts are now confident that the US Federal Reserve will raise interest rates by 25 bps at subsequent meetings this year. Yesterday, SaxoBank analysts said that "given the strong increase in energy and transportation costs, mainly related to Ukraine, we forecast that the US inflation rate could reach double digits this year."

European stock indices have started to decline again. At the close of business yesterday, the German DAX (DE30) decreased by 2.93%, the French CAC 40 (FR40) lost 2.83%, the Spanish IBEX 35 (ES35) decreased by 1.15%, and the British FTSE 100 (UK100) fell by 1.27%. At its meeting yesterday, the European Central Bank unexpectedly announced that it would begin cutting its bond-buying program in the third quarter of this year and open the door to raising the interest rate by the end of 2022 to fight rising inflation. The ECB also lowered its forecast for Eurozone economic growth this year to 3.7% from the 4.2% previously expected. The inflation forecast for the current year was raised to 5.1% from 3.2%. Analysts believe that the war in Ukraine will have a serious impact on economic activity and inflation in the Eurozone due to rising energy and commodity prices, undermining international trade, and the weakening of confidence. In addition, market participants were disappointed by the talks between Russian Foreign Minister Sergei Lavrov and Ukrainian Dmitry Kuleba in Turkey.

The US Federal Reserve and the ECB face very difficult challenges in balancing high inflation and slowing economic growth. The situation cannot be left as it is. Otherwise, inflation will continue to rise, which is already at highs. On the other hand, tighter monetary policy will slow economic growth, given that many countries have failed to reach the pre-pandemic levels and could go back into recession. Against this backdrop, European countries are more vulnerable than the US and UK.

At yesterday's EU summit, the Hungarian Prime Minister said that the EU would not impose sanctions on oil and gas imports from Russia. But at the same time, the heads of the states and governments of the European Community have stated their determination to increase pressure on Russia and Belarus even more.

Asian stock indices are decreasing sharply in trading on Friday amid uncertainty over the situation in Ukraine and concerns about persistently high inflation. Japan's Nikkei 225 (JP225) decreased by 2.05% from the open, Hong Kong's Hang Seng (HK50) lost 1.61%, and Australia's S&P/ASX 200 (AU200) fell by 0.94%. Reserve Bank of Australia Governor Lowe said that the RBA would prepare to raise interest rates this year amid an expected further inflation rise due to a jump in global commodity prices. Two weeks ago, the RBA did not plan to raise rates this year.

Main market quotes:

S&P 500 (F) (US500) 4,259.52 -18.36 (-0.43%)

Dow Jones (US30) 33,174.07 -112.18 (-0.34%)

DAX (DE40) 13,442.10 -405.83 (-2.93%)

FTSE 100 (UK100) 7,099.09 -91.63 (-1.27%)

USD Index 98.54 +0.57 (+0.58%)

Important events for today:
  • – Australia RBA Lowe’s Speech at 00:15 (GMT+2);
  • – UK GDP (m/m) at 09:00 (GMT+2);
  • – UK Industrial Production (m/m) at 09:00 (GMT+2);
  • – UK Manufacturing Production (m/m) at 09:00 (GMT+2);
  • – German Consumer Price Index (m/m) at 09:00 (GMT+2);
  • – Canada Unemployment Rate (m/m) at 15:30 (GMT+2);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2).

by Justforex, 2022.03.11

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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