The first economic consequences of the Ukrainian crisis did not take long to spread to the countries of the European Union. Inflation figures for the countries of the zone for the month of March have in fact exploded upwards, exceeding by far, the consensus of analysts. European inflation, which until now has evolved well below that in the United States, now has nothing to envy... even if its components are very different with a contribution from the rise in oil prices much more significant.
In Germany, inflation year over year in March came in at 7.3% against 6.3% expected (it was 5.1% over one year in February). The energy component increased by 40% over the year compared to just over 20% year-on-year the previous month. In Spain, inflation reached almost 10% over one year, up by more than 2% over the month. Overall, inflation in the euro zone stood at 7.5% in March, which should significantly penalize growth. The 2022 growth forecasts for the zone have already been revised down by more than 1% since the start of the year. In Germany, based on the IFW institute which has almost halved its growth forecast for 2022 (from 4% to 2.1%), a week ago, the "wise men", a group of economists who advise the government, have reduced their forecast to 1.8% against 4.6% previously… In this context, and while inflationary pressures are likely to persist, the ECB will in our view have no other choice but to accelerate the normalization of its monetary policy, probably faster than the market anticipates, with a rate hike starting in September.
In the United States, the published macroeconomic data came to confirm the latest warnings from the members of the FOMC. Job creations once again remained sustained with a sharp revision on the previous month. At the same time, the rapid rise in wages continues with a further increase of 0.4% over the month, which brings the increase to 5.6% over the year. If the strengthening of the “price-wage loop” is still the main point of attention, the new increase in the rate of participation in the labor market is good news because it is able to curb this runaway.
In the context: high inflation, accelerated monetary tightening and negative impact on growth, short-term rates continued to rise, leading to a marked flattening of the yield curve, particularly in the United States where the 2-year and 10-year are now reversed. The equity markets still do not seem to take offense to this uncertain environment for the time being and have continued to catch up, trading for the most part above their pre-Ukrainian crisis levels. We are therefore maintaining our neutral bias on global equity markets, with a few niche markets that we believe are sources of value, such as South America or, with a careful approach and the Chinese technology stocks.
