The global fall in stock markets, cryptocurrencies and other risky assets has picked up pace amid growing concern that uncontrolled inflation, rising interest rates and slowing growth could be combined to bring down the world in recession.
Stock prices fell on Friday in Asia at the start of what would likely be another hot day for investors frightened by the US Federal Reserve’s decision this week to raise interest rates by the largest margin for almost 30 years.
Other leading central banks, such as the Bank of England and the National Bank of Switzerland, have followed suit, the latter on its first rise in 15 years, sending economists to struggle to downgrade their growth forecasts. .
Stephen Innes of SPI Asset Management in Hong Kong said: “No worthwhile central banker would put anti-inflation credentials at stake and import higher energy inflation using a weaker currency.
Although the Bank of Japan announced on Friday that it was clinging to its ultra-lax monetary policy, it added that rate hikes were a “very disastrous signal for stock market investors … the global race to raise rates is not nearing the end “. line ”.
Many believe the United States may be in recession next year, raising the prospect of a broader global downturn.
Shares of the world’s largest economy have suffered their worst start in 60 years with the S&P 500 benchmark 23% since January after losing another 3.25% on Thursday. JP Morgan analysts said the state of the S&P 500 “represents an 85% chance of a recession in the United States.”
The falls, reflected in the Dow Jones average, the Nasdaq with a lot of technology and the markets of the United Kingdom and Europe, did nothing to increase confidence in Asia Pacific, where the Sydney market fell a 2.4% on Friday morning, while Tokyo and Hong Kong were more off. of 2%.
The fall in cryptocurrency also shows no sign of declining with bitcoins by almost 10% and Ethereum by 13% worse. In addition, the Financial Times reported that Singapore-based hedge fund Three Arrows Capital, which manages $ 10 billion, was unable to meet margin calls this week amid falling cryptocurrency values.
The outlook is exacerbated by the likelihood that the conflict in Ukraine will drag on and the Western economic war in Russia will lead to even higher energy prices before the winter in the northern hemisphere.
“The speed and degree of tightening of policy may be too much for economies to handle, especially given the current commodity price shock,” NAB economists in Australia said in a statement. a note on friday. “As a result, the risk of recession for several of the major advanced economies, including the United States, is uncomfortably high.”
David Bassanese, chief economist at Betashares in Sydney, went further and predicted a US recession “in the next 12 months” due to persistent inflation and the Fed’s promise to raise rates until inflation genius back in the bottle.
As a result, he said stock markets in the U.S. had to fall even further. “There seems to be room for equity markets to fall even further. My base case is that the S&P 500’s maximum to maximum drop will be 35%, implying a decline to 3,100 from its closing high of 4,796 on January 3 “. It closed at 3,667 points on Thursday.
Ongoing coronavirus confinements in China are causing more problems for the global economy. Supply chain increases in the world’s second-largest economy that began during the pandemic are expected to continue next year, at least thanks to the closure of Shanghai and other key regions.
The big picture is that China is already facing problems ranging from the decoupling of the West amid geopolitical tensions, a faltering and heavily indebted real estate market and the uncertainty caused by President Xi Jinping’s crackdown on big business. technological.
As the West raises rates, China’s central bank has been slashing them, and the Beijing government has been launching more stimulus into the economy, though it may not be enough to re-float the global economy. made its massive $ 4 trillion stimulus after the global financial crisis. of 2008-09.
The Bank of England’s decision to raise rates by 0.25% on Thursday was criticized by some as too little too late to stop inflation on its way. One forecast says prices will rise 11% in October and another report said rising food prices could exceed 15% in the fall.
The British economy contracted 0.3% in May, according to data released on Monday, and after a fall of 0.1% “increased” the chances of the economy going into recession, according to Paul Dales, chief economist at Capital Economics. .
The eurozone is also limping badly and is full of doubts about how to deal with the divergent real costs of borrowing between different countries, which make Italy have to pay more than Germany despite having the same currency.
The Economist Intelligence Unit (EIU) says in a report that while the U.S. recovered from the pandemic’s fall faster than other economies, there were indications that consumer spending was weakening. His basic view is that US growth will stop before a recession, but it could be an upcoming call.
“EIU’s basic forecast is that economic growth in the United States will slow sharply in 2022 and 2023, due to stubbornly high inflation, rising interest rates and stagnant growth elsewhere. “, he said.
“We expect consumer demand to be strong enough to avoid a total recession, thanks in part to the tight labor market and strong household balances. However, that doesn’t mean a recession is completely off the charts.” .