War, inflation and hawkish policy pressure the financial markets

Voya
By May 5, 2022 10:47

War, inflation and hawkish policy pressure the financial markets

The world and markets continuously change, but over the first three months of 2022 there have been shocking shifts in the landscape and asset prices. Russia’s invasion of Ukraine caught many off-guard. Beyond the terrible hardships this war has already caused for those directly involved, the distressing circumstances have cast a dark shadow of uncertainty over Europe and exacerbated existing risks. Geopolitical tensions between the West and the rest are as strained as they have been in decades. Stresses have been felt most acutely in the energy arena, as Russia produces about 10% of global oil and provides Europe with more than 40% of its natural gas. This disruption makes it more difficult for policy makers to quell inflation, which the Federal Reserve now admits is not transitory. Even stripping out food and energy, core CPI and personal consumption expenditures (PCE) are up 6.4% and 5.4% year-over-year (YoY), respectively. Labor markets are extremely tight: job openings now exceed estimates of unemployed workers by nearly 2:1 (Figure 1). As a result, the Fed has set a more hawkish tone in recent communications and left investors wondering how aggressive it will be.

Voya
By May 5, 2022 10:47

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