Dark red bags. The explosive mix of war, inflation and lockdown in China has flooded financial markets from Asia to the United States via Europe, with listings closing at their lowest levels in the past two months thanks to a drop in oil squeezing energy. Piazza Affari closed down 2.74% with the spread rising to 205 basis points while yield on BTPs jumped to 3.22% from November 2018 levels.
Instead, a jingle on Wall Street, which closed in the mini for 13 months. The sell-off hitting the stock markets is linked to the actions of central banks, which have quickly begun to withdraw stimulus measures set in the pandemic in an effort to contain inflation, as well as investors who are making a hasty move. Once again in the face of signs of slowing growth. What is worrying is the news coming out of China as the Covid lockdown is starting to affect the economy, causing the rest of the world to shiver. Chinese exports slowed significantly in April, rising by a modest 3.9%, marking the first single-digit growth in 18 months. Uncertainty related to the war in Ukraine and the effects of sanctions are adding to the slowdown in Beijing.
The invasion accelerated the global price rush, prompting central banks to take decisive action against inflation at its highest levels in 40 years. To restore price stability, the Fed embarked on the steepest rate hike since 1980 accompanied by a rapid reduction in the balance sheet, which rose to $9 trillion with the pandemic. After raising interest rates by a quarter point in March, the US central bank adjusted them by another half a point in May and opened the door for a series of 50 basis point hikes in upcoming meetings.
The pressure, the fear of economists and investors, risks sliding the US economy into recession, not yet fully recovering from the pandemic, or even worse, into stagflation. The Federal Reserve, in its semi-annual Financial Stability Report, states that persistent high inflation along with a sudden rise in interest rates are among the main short-term risks to the US financial system. The central bank also warned that the war in Ukraine could affect financial stability as well as the global economy as noted by Treasury Secretary Janet Yellen. A complex picture in which uncertainty reigns, the biggest enemy of the stock exchanges. On Wall Street — with the Dow Jones Index closing 1.99%, the Nasdaq down 4.29%, and the S&P 500 down 3.21% — it is technology that is driving the highest price.
After a two-year run with Covid, Big Tech has not just brakes but nails. From Meta to Google, from Apple to Amazon, all the big giants have suffered huge losses. Cupertino lost 3.08%, giant Jeff Bezos lost 5.12% and Facebook and Twitter 3.69% “market volatility shows that there is significant uncertainty about where we think we are headed,” they say some analysts are concerned about the Fed and its limits to its action. In the fight against inflation in the context of the war in Ukraine, giving wings to energy prices and shutdowns in China that make it difficult for supply chains to return to normal. The drop in stock exchanges was accompanied by lower oil prices, with West Texas Intermediate crude closing 6.1% lower, and the collapse of Bitcoin.
The cryptocurrency drops below $31,000, losing 50% of its value since its November peak. Compared to seven months ago, the cryptocurrency market is sending $1.6 trillion in smoke. “With inflation fears, many investors are taking a risk-reducing approach that includes selling cryptocurrencies and stocks,” observers said. For crypto skeptics, the drop shows that Bitcoin cannot be considered a safe asset: the digital currency has lost more than 29% this year compared to -10% in bonds, stocks and above all compared to +2.5% in gold, the safe-haven asset par excellence.