It was all meant to fall into place: The world gets vaccinated, and the recovery from the pandemic-doom begins. But soaring energy prices are about to put the crunch on China, and then the rest of the world.
The latest bout of commodity-price surge has taken markets by surprise just as major central banks were planning to find a path out of their stimulus measures.
But the price of commodities may put an end to that sort of wishful thinking on the part of federal treasurers and the Fed.
OIL, GAS RISE
Oil’s climbed to more than $80 a barrel for the first time in three years, natural gas for October delivery traded at the costliest in seven years and the Bloomberg Commodity Spot Index rose to the highest level in a decade.
The rising cost of power, as well as intermittent power cuts to Chinese factories as Beijing tries to force reduced emissions, could now lead to surging prices for Chinese goods.
Sharp cuts in production across a range of energy-intensive industries in China are now expected to drag growth lower this year, with economists from Goldman Sachs Group Inc. to Morgan Stanley cutting forecasts.
WALL STREET BRACES FOR IMPACT
Investors have been caught by surprise, having spend much of the year planning for a sudden recovery. Wall Street stocks ended sharply lower on Tuesday in a broad sell-off driven by rising U.S. Treasury yields.
It was the S&P 500 index’s biggest one-day percentage drop since May, and the Nasdaq’s largest since March.
The S&P 500 and the Nasdaq Composite index were on track for their largest monthly declines since September 2020.
“The big picture is the sudden surge in the past week of yields, which has led to a ‘sell first, ask questions later’ mentality.”Ryan Detrick, senior market strategist at LPL Financial
In the US, rising costs for households and companies are hitting confidence while pushing inflation faster than economists had expected only a few months ago.
In the U.K., consumer confidence fell in September at its sharpest pace since almost a year ago as Britons brace for a looming income squeeze.
All three major U.S. stock indexes slid nearly 2%, with tech and tech-adjacent stocks weighing heaviest as investors lost their risk appetite.
“(But) there are multiple factors weighing on sentiment today,” Detrick added. “The back-and-forth in Washington with the debt ceiling and the spending bill and potential higher taxes have weighed on overall investor psyche and has led to a pretty good sized sell-off.”
THE SILVER LINING
Thankfully for advanced economies, they have been able to recover from the “COVID recession” better than anticipated a year ago.
Many officials around the world are still hopeful the current spike in prices will fade without the need for action.
European Central Bank President Christine Lagarde believes the key challenge for policy makers is that “we do not overreact to transitory supply shocks that have no bearing on the medium term.”
Why the U.S. is back to panicking about the debt ceiling
Treasury Secretary Janet Yellen has issued a stark warning, stating that a potential government shutdown in the United States could seriously jeopardize the nation’s economic advancement.
With Congress yet to pass a budget resolution, the looming threat of a shutdown has cast a shadow over the country’s fiscal stability.
Yellen emphasized that a government shutdown would disrupt critical federal functions, impacting not only government employees but also various sectors of the economy. The potential consequences include delayed payments to federal workers, disrupted public services, and a significant hindrance to economic growth.
In her statement, Yellen pointed out that the ongoing economic recovery from the COVID-19 pandemic is already fragile, and a shutdown would add unnecessary uncertainty and risk to an already challenging situation. Financial markets are likely to react negatively to such an event, potentially leading to increased volatility and decreased investor confidence.
Furthermore, Yellen stressed the importance of Congress taking immediate action to raise the debt ceiling. Failure to do so, she warned, could result in a catastrophic default on U.S. government debt, with severe repercussions for the global economy.
China’s economic headwinds will impact the world
In recent times, China’s economic health has become a topic of international concern. Often regarded as the world’s second-largest economy and home to over 1.4 billion people,
China is grappling with a slew of issues: sluggish growth, soaring youth unemployment, and a turbulent property market. The situation escalated further when the chairman of Evergrande, a heavily-indebted real estate giant, came under police scrutiny, leading to a suspension of the company’s shares on the stock market.
The question on many minds is how much these troubles in China matter to the rest of the world. While some argue that fears of a global catastrophe are exaggerated, there will undoubtedly be repercussions felt by multinational corporations, their employees, and even individuals with no direct ties to China.
China plays a pivotal role in the global economy, responsible for more than a third of worldwide economic growth. Hence, any slowdown in China’s economic engine will reverberate beyond its borders. Multinational giants like Apple, Volkswagen, and Burberry rely heavily on China’s vast consumer market, and reduced domestic consumption in China will affect these companies and, subsequently, their global suppliers and workers.
However, the idea that China is the sole driver of global prosperity has its skeptics. While China’s economic growth contributes significantly to global figures, it primarily benefits China itself due to its trade surplus. This surplus means that China exports far more than it imports, making its growth more self-contained.
Nonetheless, a China that spends less on goods and services, or on housing construction, translates to reduced demand for raw materials and commodities. This hits countries like Australia, Brazil, and African nations, which heavily depend on exporting such resources. Moreover, weak demand in China results in stable prices, which can be welcomed by Western consumers grappling with inflation.
Over the past decade, China has poured over a trillion dollars into expansive infrastructure initiatives like the Belt and Road Initiative, benefiting more than 150 countries. However, if China’s economic problems persist, its capacity to finance such projects abroad may diminish. This could have lasting consequences, especially for developing nations reliant on Chinese investments and technology for their infrastructure development.
Lawsuit – Black Tesla workers endure harassment
A recent lawsuit filed by the Equal Employment Opportunity Commission (EEOC) has shed light on a disturbing workplace environment at Tesla’s Fremont factory.
Black Tesla workers have allegedly faced relentless harassment, including the display of swastikas and nooses, according to the lawsuit.
The lawsuit, which was filed on behalf of several affected employees, details a pattern of racial discrimination and harassment that has persisted for an extended period. Incidents reported in the lawsuit include the drawing of swastikas on workstations and restroom walls, as well as nooses left hanging in areas where black employees would see them.
The complaint further alleges that management at the Tesla factory failed to take appropriate action to address the issues, even after multiple complaints were made.
This lack of response has only exacerbated the hostile work environment, leaving the affected workers feeling vulnerable and unsupported.
Tesla, a company known for its innovative approach to electric vehicles and renewable energy, now faces a serious legal battle that threatens to tarnish its reputation.
The EEOC lawsuit seeks compensation for the victims and aims to bring about significant changes in Tesla’s workplace culture to prevent such incidents from happening in the future.
Andrew Tate granted partial travel freedom in Romania
Why the U.S. is back to panicking about the debt ceiling
Citigroup CEO on layoffs: No time for bystanders
Crypto.com accidentally transfers $10.5m to woman instead of $100
What is happening between SHIB and Vitalik? | TICKER VIEWS
Russia has cancelled itself. But the world should beware of poking the Russian bear￼
News4 days ago
OpenAI’s ChatGPT can now see, hear, and speak
News2 days ago
Elon Musk on Philadelphia looting: ‘America resembles the Joker’
Money5 days ago
What is the future of investing?
News4 days ago
Victorian Premier Daniel Andrews quits, leaving debt, lockdown legacy
Money4 days ago
Chinese youth swap LinkedIn for Tinder to find a job
Insight2 days ago
Revolutionising property ownership with property syndication
Money3 days ago
What does being “officially rich” look like?
News2 days ago
Cybersecurity experts on the best ways to protect your business