How can you dampen inflation while not limiting growth? This is the difficult task central banks have to face. As others struggle with rising prices, we will see how China’s COVID lockdowns are slowing down trade and stifling its economy.
Another problem is that M&A deals in excess of $400 billion are still waiting for financing. However, costs are rising quickly.
1/NAME OF GAME
Central bankers are feeling a sense of urgency as a result of the red-hot inflation. The Fed raised its largest rate in 22 years, Australia increased its forecasted increase and India made an unexpected move.
The policy tightening rush only adds to the storm clouds over the global economy, which has been hit by high food and energy prices as well as war in Ukraine and China’s COVID curbs. While the Bank of England raised rates, it also warned of recession risks.
The tightrope central banks are on will be evident in Germany’s ZEW sentiment indicator and preliminary Q1 UK GDP data. Emerging markets such as Mexico, Peru and Malaysia are likely to confirm that the rate hike cycle is continuing.
Is the U.S. inflation at its peak after the largest increase in over 40-years? On Wednesday, the April consumer price index will be released.
CPI for March was 8.5%, an annualized figure. This is despite record-breaking gasoline prices. CPI rose 1.2% on a monthly basis, the largest gain since September 2005.
Early forecasts predict a 0.2% monthly increase.
The Fed’s 50-basis-point rate increase on May 4 was likely sealed by the March inflation surge. The future inflation print could influence expectations about how monetary policy will change in the future.
China’s anti COVID lockdowns are a clear indication that the spring is coming. The economic outlook is also being affected, both in China and globally, by the enormous strain it places on tens to millions of people.
Markets are losing patience with the lack of policy support. If Monday’s trade figures follow the recent spates of severe economic activity, then global growth forecasts will get worsening already.
Prices for iron ore, copper, and oil are already on the verge of falling. The slowdown comes amid a steep U.S. hiking season. It also bodes poorly for the wobbling Chinese Yuan and, in turn, for foreigners who have invested in local markets.
4/ OIL & PRIDE
The European Union seems to think that banning Russian oil imports is a matter of when, and not if. According to the bloc’s top diplomat, the bloc is close to agreeing to its sixth and most severe package of sanctions against Moscow for invading Ukraine.
The package’s centerpiece is a phased embargo against Russian oil, which accounts for more than 25% of EU imports. This will force European refineries to race to find new crude suppliers, and leave drivers with higher fuel bills at a time where the cost of living is increasing worldwide.
Russia will host the annual May 9 Victory Day celebration in Moscow to commemorate the anniversary of the Soviet Union’s victory over Nazi Germany. The Kremlin denied that President Vladimir Putin intended to declare war on Ukraine and to mobilize the nation on this highly symbolic day.
5/WAITING FOR MONEY
After the Russian invasion of Ukraine, global dealmaking is rebounding.
April M&A saw a 30% increase in March to $387 billion. This included mega deals like Elon Musk’s $44billion buyout of Twitter, and a 58billion-euro ($61.04billion) bid by a consortium for Atlantia’s Italian airport and motorway operator.
Funding is now a major challenge for the M&A market.
Refinitiv data shows that more than $400 billion in deals have been announced globally since January, but not yet completed.
M&A deals often include’staple finance’, which is a pre-arranged package that is offered to potential buyers to finance the acquisition. Once the deal has been reached, the buyer can arrange financing through a syndicate, inviting other buyers.