Global markets are going through tough times, but we must prepare for the worst
The first half of 2022 brought a lot of shock to the global economy, one of the main ones being a record rise in inflation. At the same time, there are good dynamics, but global markets are still unstable. Experts warn that serious difficulties are ahead, which we should already be prepared for.
The main negative factors of this year are:
– rising inflation;
– the collapse in the value of technology stocks;
– the biggest bond sell-off in 40 years;
– crisis in the crypto industry.
All this increases the risks of a global market crash and brings a recession closer. However, experts are in no hurry to make predictions, while their assumptions regarding the further development of the global economy vary widely. For example, in a survey of Deutsche Bank’s clients, the probability of a crisis in the U.S. is estimated at 90%. However, the forecasting model used by the FRB, says a 4.1% chance of a collapse.All developed countries have problems, and it should be understood that a crisis in one state will lead to serious consequences in another. For example, Japan has so far restrained the level of bond yields, but it is not known how long this will be possible. If these processes are not controlled as tightly as they are now, the population of the country will start to actively sell foreign assets and buy local securities. Such a situation will lead to a collapse in other markets.
The S&P 500 index fell by 21%, with the average recession figure for the year at 26%. Based on such data, J.P. Morgan experts estimate the risk of recession at 80%. However, it should be understood that a large proportion of the stock sales that occurred this year were not related to the risk of recession. In this case, one of the main roles was played by investor fears of a tightening of the Fed’s policy. In addition, the weakening of the economy had a significant impact on sectors where stability depends on economic cycles.
The risk of crisis is not only inherent in the U.S. – Japan and the European Union are also under attack. The Japanese Central Bank is holding back, while the European regulator continues to raise interest rates to avoid a collapse. The greatest risk of a crisis in the EU is in Italy, and so far all the Central Bank’s forces are concentrated there.
However, it should be understood that the increase in key rates has its negative side, and if now households feel the effects of inflation, the situation will soon worsen due to the change in the size of the rates. Therefore, it is important to focus on strengthening the global market. We have to act together, understanding that a crisis in one country will lead to a collapse in another country.