China-Singapore Longitude and Latitude, January 28 Title: The global market may face multiple risks such as high inflation in the United States
Author Cheng Shi Chief Economist and Managing Director of ICBC International
Zhang Hongyan Senior Economist, ICBC International
In our view, there are three major uncertainties in the current global market, which are analyzed below.
First, high inflation in the United States and accelerated tightening by the Federal Reserve will amplify volatility in global capital markets.
It is well known that rising energy prices will have a significant impact on inflation expectations, while upward inflation expectations will further affect manufacturing activity.
Although most scholars and industry economists believe that as the impact of the epidemic weakens, the increase in energy supply will reduce trade costs and cause inflation to fall. But we believe that the level of the US inflation center will show an overall upswing for a long time after the pandemic.
If the Fed fails to effectively control inflation, the market will form a consistent medium- to long-term expectation of high inflation. Later, we do not rule out that in the short term, the Fed will take more aggressive measures to curb high inflation pressures, and future inflation changes are likely to show high volatility. Long-term high volatility inflation will further weaken the stability of financial markets and amplify the volatility of capital markets.
Second, emerging market countries will face three major risk tests: austerity panic, the spread of new variants, and the escalation of geopolitical contradictions.
First, austerity is prone to panic. Once the United States starts to raise interest rates and shrink its balance sheet, most emerging market countries will face more severe economic challenges than the previous round of interest rate hikes.
Second, the threat of the global spread of new variants remains. Due to the high contagiousness of the Omicron variant and the low efficiency of vaccine protection, the global epidemic lockdown measures are likely to be tightened again, resulting in the smooth flow of production factors and the suppression of supply chain repairs, thus bringing downside risks to the economy.
Third, geopolitical turmoil is still likely to continue. Due to the lack of monetary and fiscal policy space in most emerging market countries, different emerging markets may adopt extraordinary policies in the future to maintain the stability of their own markets, which may further intensify the contradictions between countries.
Third, the impact of the "sunspot minimum year" on the global economy.
Sunspots enter the most active and vigorous year, called the "Sunspot Maximum Year", while conversely, the year with the weakest sunspot activity is called the "Sunspot Minimum Year". Right now, we are in the latter.
On the one hand, changes in the number of sunspots affect the Earth's temperature, causing changes in human energy demand, which eventually leads to fluctuations in energy prices. On the other hand, the activity of sunspots will have an impact on the physiological and psychological state of human beings, thus affecting people's decision-making in various economic activities. The scientific community has not yet established how sunspots affect human cognition, decision-making, and behavior, but since the second half of the 20th century, the "sunspot minimum" has highly coincided with the time period of the major financial crisis.
In short, the interconnection between the above three uncertainty risks may trigger further adjustments in global macro policies and change global market expectations, thereby increasing the complexity and uncertainty within the global financial system, which is worthy of our vigilance. (Zhongxin Jingwei APP)
Zhongxin Jingwei copyright, without written authorization, any unit and individual shall not reprint, excerpt or otherwise use. This article does not represent the views of Sino-Singapore Jingwei.
Editor-in-Charge: Lee Wai-chung