The world economy in a nutshell
2023.01.19 07:34
The world economy in a nutshell
By Tiffany Smith
Budrigannews.com – The possibility that the United States is indeed on its way to a recession has frightened global markets, but the Federal Reserve may not come to the rescue as quickly as many believe.
Investors have clearly been alarmed over the past 24 hours, with stocks falling, bonds rising, and the dollar dragging on, as a result of additional indications of sharp disinflation and a string of dire economic readouts on U.S. retail and industrial activity last month.
In December, U.S. retail sales fell for the second month in a row, the biggest drop in a year, driven by lower vehicle and other goods purchases. Although a decrease in producer prices may provide some respite to those who are concerned about inflation, it may also pose a problem for corporate margins as manufacturing declined by 1.3%.
On Thursday, the nervousness spread to other parts of the world. As China-bound shipments fell for the first time in seven months, Japan reported that its export growth slowed significantly in December, raising concerns about the global economy.
It is unclear how much the extreme cold snap in the United States or the final stages of China’s draconian “zero COVID” lockdowns influenced December.
However, despite the warnings, Fed policymakers indicated on Wednesday that they will continue to raise interest rates, with some advocating for a maximum rate of at least 5%.
Loretta Mester, president of the Cleveland Fed, stated, “I just think we need to keep going.”
Additionally, a number of forecasters are concerned that the Federal Reserve will err on the side of tighter policy in order to reduce inflation.
HSBC’s U.S. economist Ryan Wang stated on Thursday, “We continue to forecast a terminal federal funds range of 4.75-5.00% but believe the risks could be skewed a bit higher.”
Wednesday saw the biggest decline of the year for markets as a result of the possibility. On Thursday, both international bourses and U.S. stock futures remained negative.
Futures markets continued to forecast half a point of rate cuts in the second half of 2023, despite the Fed’s hawkishness regarding rates greater than 5%. As a result, the likely Fed “terminal rate” fell even further to 4.86 percent. Ten-year U.S. Treasury yields fell to their lowest level since September at 3.32 percent. The dollar fell to levels not seen since June.
The impending political conflict over the debt ceiling in the United States is the other major source of concern for investors on Thursday and a contributing factor to this week’s market wobble.
The United States of America is likely to exceed its required borrowing limit of $31.4 trillion on Thursday, necessitating the Treasury to implement extraordinary cash management measures that may prevent a debt default until the beginning of June.
In addition to raising concerns regarding the possibility of a default on short-term U.S. debt, the political impasse may also make it more difficult for investors to manage their cash in money market instruments, leading them to look for other safe havens such as long-term Treasuries or even overseas money market funds.
NASDAQ: Netflix tops the most recent earnings diary at present.
The following are important developments that could guide U.S. markets later on Thursday:
Housing starts and permits in December, weekly jobless claims, and the Philadelphia Federal Reserve’s business survey in January Ten-year inflation-protected notes are put up for sale by the U.S. Treasury.
Lael Brainard, vice chair of the Federal Reserve, John Williams, president of the New York Fed, and Susan Collins, chief of the Boston Fed, all spoke; Christine Lagarde, President of the European Central Bank, Isabel Schnabel, a member of the ECB, and Mairead McGuinness, the European Commissioner, discuss U.S. corporate earnings: Procter & Gamble (NYSE:), Netflix, NASDAQ: Northern Trust, Bank M&T (NYSE:), NYSE: PPG Industries, NASDAQ: Fifth Third Bancorp Truist Financial (NYSE:), SVB Financial NYSE: KeyCorp, NYSE: Comerica, NASDAQ: Fastenal
