Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

The Global Economy Enters ‘Eye of a New Storm’ (Bloomberg)

Bloomberg title: The Global Economy Enters ‘Eye of a New Storm’
By: Simon Kennedy
Date: 3 October 2022 


Forget Nike Town. It’s more Nike down, these days.

Shares of the sportswear giant plunged the most in two decades last week.

The main reason was a 65% surge in inventories during the fiscal first quarter through August.

But the retailer also cited higher freight costs, a byproduct of ongoing supply chain strains, and foreign-exchange effects, the result of a surging dollar.

See Bloomberg article for diagram 1: Nike is set for its biggest annual drop on record after earnings miss

Nike isn’t alone in sounding the alert:

  • FedEx is warning on delivery volumes
  • Micron and Kioxia, two of the world’s top memory chipmakers, are slashing production to cope with a steep plunge in demand
  • Apple is backing off plans to boost output of its new iPhones, according to Bloomberg
  • Meta is preparing for the first reduction in headcount ever

As Enda Curran writes here, such troubles and the factors behind them suggest the risk of a rapid downshift in global growth, raising the threat of another worldwide recession and the danger of major financial disruptions.

Former US Treasury Secretary Lawrence Summers goes as far as to tell Bloomberg Television that just as people began to fret a year before the 2008 financial crisis, “this is a moment when there should be increased anxiety.”

At the heart of the strain: The fallout from the most aggressive hiking of interest rates since the 1980s. Having failed to foresee the surge in inflation to multi-decade highs, the Federal Reserve and most peers are now lifting rates at speed in a bid to restore price stability and their own credibility.

The US tightening is in turn pushing up the dollar, helping US officials who want to cool prices, but not counterparts who worry the offsetting weakness of their currencies will fan inflation further at home.

Other obstacles include:

  • Russia’s invasion of Ukraine
  • An energy crisis that’s proving particularly problematic for Europe
  • China’s deepening property slump and continued Covid-Zero restrictions 
  • Increased requests for help from the International Monetary Fund
  • Market fallout from the UK’s unfunded tax cuts

See Bloomberg article for diagram 2 on Financial Stress in US and Euro zone

Mounting nerves across global markets can already be seen in the Bank of America Merrill Lynch GFSI Market Risk indicator, a measure of future price swings implied by options trading on equities, interest rates, currencies and commodities.

The gauge has jumped to the highest since March 2020, when markets were in full-blown pandemic panic.

As Reserve Bank of India Governor Shaktikanta Das said Friday after lifting rates again:

“The global economy is in the eye of a new storm.”



Framework Posts


Submit a Comment

Your email address will not be published. Required fields are marked *

Pin It on Pinterest