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With just less than two weeks before the new year, uncertainty in the financial markets continues to escalate. Investors fear that new mobility restrictions could affect fuel demand. If the mutated Omicron is indeed shown to have worrisome vaccine resistance and increased transmissibility, black gold prices are likely to correct further, dragging travel sector companies down with it.
Will global growth slow in the first quarter? The fact that Europe has reimposed bans on the arrival of passengers from third countries, as well as unvaccinated citizens, leads us to believe that most EU countries could indeed face an economic slowdown. In the case of the US, meanwhile, the main concern is not so much the epidemiological situation but the lack of approval of the social spending plan promoted by the Biden Administration. Goldman Sachs, for example, expects that without the so-called ‘Build Back Better’ (BBB), growth in the world’s leading economy in the first quarter of 2022 will be downgraded from 3% to 2%.
In China, on the other hand, the regulator on Monday cut its benchmark lending rate (LPR) for the first time in 20 months, in a bid to shore up growth in its slowing economy, although the country remains cautious about easing conditions in its indebted property market. To be more precise, the one-year LPR was reduced by 5 basis points to 3.80% from a previous rate of 3.85%, while the five-year LPR remained at 4.65%.
It is worth mentioning that most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of home mortgages. While Beijing’s move to lower the LPR was expected, it highlights the divergence of Chinese monetary policy from other major central banks willing to raise interest rates. The question then becomes, could Beijing ease monetary policy further to curb the economic slowdown?
Finally, in the case of Russia, one of the greatest risks lies in geopolitical instability. According to sources familiar with the intelligence, more Russian military units have been sent to the border area in recent days. U.S. and Ukrainian officials also have evidence that Russia has begun diverting commercial air and rail systems to support the military effort, although similar air and rail activity was visible in the spring during Russia’s recent military buildup, which was eventually withdrawn. How will the story end – will we see a war?
Be that as it may, Putin’s annual press conference will take place this week. Will we hear anything new? Will Vladimir Vladimirovich announce his readiness to run for another six-year term in 2024? It will also be interesting to hear the president’s views on the deterioration of relations with Western countries.
Looking ahead to this week, one should pay attention to inflation data in the US and Japan, as well as third-quarter GDP updates in the US and UK. Consumer confidence data will also be released in the US and the euro area.
