Broker Check

Is a Global Recession Coming?

May 09, 2022
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Fears of a global recession are abundant. Last week the Federal Reserve raised short term rates by .5% - more than any one move for more than two decades – and asset markets rocketed higher only to sell-off. Some market observers were saying the stock market would be at all-time highs within a few days and that the Fed would have to raise rates even faster. Then the market had the most aggressive sell-off since March 2020. There are no two ways about it – we are in a very wild macro-economic environment, and it is very hard to predict.

The slowdown in China is in plain sight. Major cities have been completely shut down and smaller cities are seeing a rise in Covid rates. The port of Shanghai has historic backlogs and one can only hope that the worst is behind us. But obviously with China it is very difficult to tell.

Europe is slowing down for sure also and the Russia-Ukraine conflict is of course, front and center. The European financial managers are trying to raise rates and return to more normal policies considering the surging inflation.  However, the longer the conflict with Russia goes on, the worse the prospects for reasonable energy prices and the economy as a whole. The second half of the year is not looking good.

The economy in the U.S. has been the most consistent globally coming out of the Covid retraction although it did contract in Q1. Now the question is how flexible the Federal Reserve will be in its tightening campaign. Recent employment data was encouraging, however, surely some consumer spending numbers will reel in with the precipitous rise in food and energy. Throw on top of that the mortgage rates averaging more than 5% on a 30-year fixed rate for the first time in more than a decade and one has to think that the housing boom will cool off significantly. Without a doubt, risks of a recession are still rising – but only time will tell…

One thing we find quite curious in the financial world is the only two currencies that are higher vs the U.S. dollar in the last year. The Brazilian Real and the Russian Ruble. Whaaaaat? The Russian Ruble is higher vs. U.S. dollar over the last year? It is – take a look…

 

 

 

So, if the Russian economy is falling apart because of the sanctions after their aggression into Ukraine, how is this possible? The answer is complicated, but some of the rest of the world is buying rubles in order to purchase oil and gas. Going forward there is talk of the Russians having an internal currency system that is based on a basket of commodities. We aren’t sure how that is going to roll out yet, but stay tuned…

Regards and good investing,

Greyson Geiler