Public nervousness has been increasing lately due to US authorities failing to come up with an agreement regarding a raise of the statutory debt limit. Failure to agree on such an increase would result in a default of the US, a potentially catastrophic, unprecedented event. From our point of view, this scenario is highly unlikely though. Nevertheless, negotiations could hold on until the last second, leading to increased volatility on financial markets.
Markets have stabilized after risks of spillovers to the broader banking sector faded. The focus is shifting back to the usual suspects but an aftertaste of more dovish central banks stuck. In contrast to rate markets, FX market volatility has receded to previous levels. The euro has emerged stronger and also currencies of Central Europe regained their highs. Not so for the Polish zloty which was not impressed by global volatility already in the first place. Interestingly, the Russian rouble depreciated in recent days, despite global energy prices surging after OPEC+ announced deeper production cuts.
This issues features:
Not too long ago, the US economy has recovered from the corona crisis like a phoenix from the ashes. With high inflation and high interest rates the US economy once again faces severe headwinds. To what outcome this double shock will lead is subject to much debate and thus uncertainty. We use this opportunity to launch our brand-new chartbook for the US economy and provide perspectives on possible scenarios for growth, inflation and monetary policy. What will it be: soft landing, hard landing or goldilocks?
Currency markets continue to benefit from a brighter risk assessment on financial markets. Hopes of growth impulses from China's re-opening, recent economic data coming in better than expected (particularly in Europe) and signals of some sources of inflation easing are driving the optimism. Cyclical currencies as the euro and most CEE currencies benefit from this sentiment, while safe havens as the Swiss franc come under pressure. The Polish złoty underperforms in Central Europe due to local factors and the Belarusian rouble follows the Russian rouble's path.
This issues features:
The economic downturn in the euro area could turn out to be milder than feared a few months ago. That is one message from today's January PMIs, which once again surprised on the upside. At the same time, however, it is also clear that the descent from the inflation peak will be a slow and rocky one. The published figures point towards a milder phase of economic weakness, while underlying inflationary pressures remain elevated. An environment that certainly does not argue for a slower pace at the next interest rate meetings (which we do not expect either).