HANetf : The past few months have seen markets whipsawing over expecting interest rate rises. With inflation prints continuing to read high, central banks turned increasingly hawkish, dimming the outlook for growth and tech stocks.
Sign up to our free newsletters
Hector McNeil, co-CEO of HANetf
But then, Russia launched a full-scale invasion of Ukraine. This has now put central banks in a bind.
The war is expected to have a negative impact on global economic growth. In theory, that should prompt central banks to slow or even halt the expected rate rises. Markets are already suggesting this to be the case.
However, we entered this current crisis with central banks already seen as behind the curve on inflation, being forced to play catch-up to. The risk, as central banks finally came to see it, was that higher inflation expectations were becoming “anchored.”
The invasion of Ukraine adds to this. As has been widely noted, European inflation is largely driven by rising energy prices. Given the importance of the region to energy supply, the conflict and its subsequent fallout will do nothing to alleviate that. Meanwhile, both Russia and Ukraine are major exporters of food staples such as wheat and corn, another big component of inflation. The war, therefore, adds to the inflationary pressures that were already turning central bank hawkish.
This makes life difficult for central banks. A shift toward more dovish policy exacerbates inflation and risks it becoming more entrenched. Meanwhile, continuing to fight inflation risks pushing global economies into recession.
Source: ETFWorld.co.uk
Subscribe to Our Newsletter
