Economic Angst

The risk of a euro-area recession is the highest since November 2020 as energy shortages threaten to drive already record inflation higher still, according to economists polled by Bloomberg. The probability of output shrinking for two straight quarters has risen to 60% from 45% in a previous survey, and up from 20% before Russia invaded Ukraine. The rising cost of living is hurting euro-area companies and households, and supply bottlenecks are being worsened by severe droughts, which have led to falling water levels across Europe’s rivers this summer.

Putin-Kim Relationship

Russian President Vladimir Putin offered to expand relations with North Korea, reaching out to his neighbor as the Kremlin scours the globe for weapons for its war in Ukraine. Putin sent a congratulatory message to North Korea for its Liberation Day holiday on Monday. The two countries “would continue to expand the comprehensive and constructive bilateral relations with common efforts,” the official Korean Central News Agency reported. Russia has been taking an increasingly hard line sorting friend from foe nearly six months after it was evicted from much of global finance over the invasion of Ukraine.

BOE Mandate

Bank of England Governor Andrew Bailey would be “open to a review” of the central bank’s mandate after Foreign Secretary Liz Truss criticized its approach to inflation, the Telegraph reported, citing a person familiar with the situation. Bailey made the comments during a telephone call with UK Chancellor Nadhim Zahawi on Aug. 4. Bailey’s reported remarks follow comments by Truss to the Telegraph this month that she would “look again” at the BOE’s mandate “to make sure it is tough enough on inflation.” Bailey has been under attack from members of Truss’ Conservative Party for being slow off the mark in tackling rising inflation, potentially setting the UK up for a long and painful recession.  

China Slowdown

China’s economic recovery unexpectedly weakened in July as fresh Covid outbreaks across the country weighed on consumer and business spending, clouding the growth outlook further. Industrial production rose 3.8% from a year ago, missing economists’ forecast of a 4.3% increase. Retail sales also grew at a slower-than-expected pace of 2.7%. The nation’s commitment to Covid Zero has made it tough to sustain any hard-won economic progress. The central bank made a surprise move to cut interest rates on the same day in an attempt to shore up an economy that’s also hamstrung by a property-sector retrenchment.

Coming Up…

European shares may edge higher after declines in Asia as traders assessed weak China data and a surprise interest-rate cut from its central bank. German Chancellor Olaf Scholz meets Nordic leaders in Oslo. Hedge funds’ 13F filings are due after a bruising quarter for investors. Expected data include Finnish inflation and retail sales, as well as Danish producer prices. Henkel and HelloFresh are among companies scheduled to report earnings.

(Source: Bloomberg, August 15-2022)