Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 22/11/22
Global equity markets paused for breath following their +9% trough-to-peak rally
Key Takeaways
Global equity markets paused for breath in the past week, with the S&P500 down by 0.7% and the EuroStoxx up by 0.8% wow, following +7.3% and +8.3% gains trough-to-peak. Core government bond yields were mixed, with the UST 2-Year/10-Year yield curve spread hovering to its lowest level since 1982 (circa -70 basis points) and suggesting that economic growth is set to slow in the next twelve months.
The US Dollar moved sideways, initially continuing to slide (-4.5% since its peak on 3rd November in NEER terms) on speculation for a less hawkish Fed on the back of signs that US inflation could have passed its peak. The minutes of the November 2nd FOMC meeting will probably offer insights regarding the pace of hikes and the terminal interest rate. Nevertheless, strong economic data, with the Atlanta FED GDPNow model pointing to growth of +4.2% qoq saar in Q4 and renewed hawkish Fed officials’ commentary arrested the US dollar decline. In all, the DXY Index rose by 0.6% in the past week and posted further gains on Monday (+0.8%).
Oil prices decreased on weakening demand expectations, fueled, inter alia, by a relatively unfavorable pandemic situation in China. Brent prices declined by -8.7% wow to $87.6/barrel and the WTI fell by -10% wow to $80/barrel).
On the other hand, European natural gas prices rose on account of Freeport LNG, an important US exporter of LNG, pushing back by a month to mid-December its estimate for the partial resumption of operations in its Texas facility. The Dutch TTF December 2022 contract increased by +18% wow to €116/MWh and the December 2023 by +13.5% wow to €123/MWh.
In the United Kingdom, according to the Autumn Statement, major shifts were confirmed (reversals compared with former P/M Truss’s Growth Plan accumulate to circa £123 bn by fiscal year 2027/28). Still, significant net supportive measures are included for the short-term, of £42 bn (1.7% of GDP) for fiscal year 2022/23 (April 2022 to March 2023), the bulk of which regard energy bills relief for households and businesses.
Significant supportive measures are also planned for fiscal year 2023/24, with, inter alia, more modest energy bills relief and taxes on windfall profits in the energy sector, more than offsetting the introduction of public transfers particularly towards most vulnerable recipients. Further ahead, a sizable fiscal consolidation is envisaged for the period 2024/2025 to 2027/2028, gradually reaching £55 bn (2.2% of GDP) by fiscal year 2027/28 according to HM Treasury (£30 bn in reduced spending and £25 bn due to higher taxes).
In all, Office for Budget Responsibility (OBR) estimates that public sector’s net borrowing as a % of GDP will reach -7.1% in 2022/23 (from -6.4% in fiscal year 2021/22), -6.4% in 2023/24, -3.7% in 2024/25 and -2.8% by 2027/28. The general government gross debt is anticipated to peak at 111% of GDP in fiscal year 2026/27.
On economic activity, the OBR envisages a recession lasting “just over a year”, with real GDP contracting by -2.1% from peak to trough (real GDP growth of -1.4% in 2023).
Key Takeaways
Global equity markets paused for breath in the past week, with the S&P500 down by 0.7% and the EuroStoxx up by 0.8% wow, following +7.3% and +8.3% gains trough-to-peak. Core government bond yields were mixed, with the UST 2-Year/10-Year yield curve spread hovering to its lowest level since 1982 (circa -70 basis points) and suggesting that economic growth is set to slow in the next twelve months.
The US Dollar moved sideways, initially continuing to slide (-4.5% since its peak on 3rd November in NEER terms) on speculation for a less hawkish Fed on the back of signs that US inflation could have passed its peak. The minutes of the November 2nd FOMC meeting will probably offer insights regarding the pace of hikes and the terminal interest rate. Nevertheless, strong economic data, with the Atlanta FED GDPNow model pointing to growth of +4.2% qoq saar in Q4 and renewed hawkish Fed officials’ commentary arrested the US dollar decline. In all, the DXY Index rose by 0.6% in the past week and posted further gains on Monday (+0.8%).
Oil prices decreased on weakening demand expectations, fueled, inter alia, by a relatively unfavorable pandemic situation in China. Brent prices declined by -8.7% wow to $87.6/barrel and the WTI fell by -10% wow to $80/barrel).
On the other hand, European natural gas prices rose on account of Freeport LNG, an important US exporter of LNG, pushing back by a month to mid-December its estimate for the partial resumption of operations in its Texas facility. The Dutch TTF December 2022 contract increased by +18% wow to €116/MWh and the December 2023 by +13.5% wow to €123/MWh.
In the United Kingdom, according to the Autumn Statement, major shifts were confirmed (reversals compared with former P/M Truss’s Growth Plan accumulate to circa £123 bn by fiscal year 2027/28). Still, significant net supportive measures are included for the short-term, of £42 bn (1.7% of GDP) for fiscal year 2022/23 (April 2022 to March 2023), the bulk of which regard energy bills relief for households and businesses.
Significant supportive measures are also planned for fiscal year 2023/24, with, inter alia, more modest energy bills relief and taxes on windfall profits in the energy sector, more than offsetting the introduction of public transfers particularly towards most vulnerable recipients. Further ahead, a sizable fiscal consolidation is envisaged for the period 2024/2025 to 2027/2028, gradually reaching £55 bn (2.2% of GDP) by fiscal year 2027/28 according to HM Treasury (£30 bn in reduced spending and £25 bn due to higher taxes).
In all, Office for Budget Responsibility (OBR) estimates that public sector’s net borrowing as a % of GDP will reach -7.1% in 2022/23 (from -6.4% in fiscal year 2021/22), -6.4% in 2023/24, -3.7% in 2024/25 and -2.8% by 2027/28. The general government gross debt is anticipated to peak at 111% of GDP in fiscal year 2026/27.
On economic activity, the OBR envisages a recession lasting “just over a year”, with real GDP contracting by -2.1% from peak to trough (real GDP growth of -1.4% in 2023).