Silicon Valley Bank sale returned optimism to financial markets, but the situation remains tense

Most economists predict that the United States is likely to enter a recession this year and face high inflation in 2024. More than two-thirds of respondents to the National Association for Business Economics (NABE) indicated that inflation would remain above 4% later this year.

Minneapolis Fed President Neel Kashkari said Sunday that central bank officials are watching the situation very closely to assess whether bank stress has led to a credit crunch that has threatened to tilt the economy into recession.

Bank of England Governor Andrew Bailey said yesterday that inflation remains the main driver of monetary policy decisions. Bailey also made it clear that the bank would be prepared to provide tighter monetary policy if signs of persistent inflationary pressures became more evident.

In Germany, 24-hour strikes called by the Verdi union and the railway and transport union EVG have hit Europe’s largest economy. Airports, including Germany’s two largest in Munich and Frankfurt, suspended flights, while railway operator Deutsche Bahn canceled rail services. The Airports Association estimated that 380,000 airline passengers were affected. In Frankfurt alone, nearly 1,200 flights were canceled for 160,000 passengers. Employees are pushing for wage increases to reduce the impact of inflation, which reached 9.3% in February. Germany, which was heavily dependent on gas from Russia before the war in Ukraine, has been hit particularly hard by the price increase as it struggles to find new sources of energy.

Russian Deputy Prime Minister Alexander Novak said Moscow is close to reaching its goal of cutting oil production by 500,000 barrels per day (BPD) to about 9.5 million. Russia is trying to keep oil prices from falling, as oil and gas have become almost the only source of income for Russia since sanctions were imposed for its invasion of Ukraine. Russian President Vladimir Putin’s plans to deploy tactical nuclear weapons in Belarus further increased tensions in Europe, which contributed to the rise in oil prices yesterday.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.33% yesterday, China’s FTSE China A50 (CHA50) decreased by 0.48%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.75%, India’s NIFTY 50 (IND50) gained 0.24%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.10% by Monday’s end.

China’s industrial profits fell by 22.9% in the first two months of this year. Factories and large industrial companies struggled to recover from COVID-related disruptions. Overall, investor sentiment in Asia remains jittery due to concerns about banking stress and its impact on global growth.