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SPI Management Newsletter 09.09.2022

European inflation increases. ECB matches its biggest ever 0.75% rate increase. Inflation accelerated further in the 19 Eurozone countries in August. The EU reports that consumer prices rose a record 9.1% year-on-year in August and rose 0.5% month-on-month. Energy again played a major role. Energy prices rose 38.3% year-on-year, flat from the previous month. Oil prices continued to fall globally and natural gas prices in Europe fell as Germany increased its gas reserves more than expected. Still, there is a good chance that gas prices will rise again, depending on what Russia does. Also, food prices increased by 10.6%year-on-year, and up 1% from the previous month. The European Central Bank, which oversees the economic policies of 19 euro-using countries, has taken aggressive steps to combat inflation, delivering a record three-quarters percentage point rate hike. At the same time, it acknowledged the serious impact of the energy crisis and announced pessimistic growth forecasts. ECB President Christine Lagarde said at a press conference: "It's a really dark downside scenario."

Europe facing an imminent energy crisis Russian energy company Gazprom has stopped supplying gas through the Nord Stream 1 pipeline. Gazprom initially said it would shut down gas for only three days for maintenance, but later announced it would shut down indefinitely late last week. In any case, Europe is clearly facing a deepening energy crisis, even as natural gas prices have plummeted in recent weeks. Nonetheless, gas supplies from Russia are still very low, continuing uncertainty about Russia's intentions in the coming cold winter months. Meanwhile, Norway became the largest supplier of gas to Western Europe after Russia's supplies fell. Additionally, extreme high temperatures this summer have increased power demand and lowered water levels. The latter limited the ability to generate electricity from nuclear and hydroelectric power plants and limited the ability to transport energy commodities on inland waterways.

Economists are divided on the risk of a U.S. recession. And the jobs data isn’t helping. A Reuters poll of economists in late August put the chance of a U.S. recession within a year at 45% (with most saying one would be short and shallow), and a Bloomberg survey put the probability of a downturn at 47.5%. But isn't the U.S. already in a recession? It depends on what you focus on, be it Gross Domestic Product (GDP) or the job market. US GDP fell 0.9% year-on-year in the second quarter, and fell 1.6% in the first quarter.This fits the traditional definition of a recession.The slowdown in growth was caused by a variety of factors including declining inventories, investment and government spending. Inflation-adjusted personal incomes and savings rates also fell. What sets this period apart from other six-month periods of negative GDP since 1947 is that the labor market continues to perform well. The closely watched non-farm payrolls figures for August showed non- farm payrolls increased to 315,000 - a rise, but the lowest one since April 2021. It also added to other recent releases showing that while growth in private employment has slowed, the rate of new job openings is much higher than expected.

Adapted from Deloitte, CNBC, WEF,NYT

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