27th February 2023
Perspective News, The Cambridge Weekly
The Cambridge Weekly – 27th February 2023
Last week saw global stock markets give back a portion of the gains made in the first few days of February. Still, since the start of the year, global stocks have made a total return of around 5% in £-sterling terms (Source: Bloomberg).
Over the past fortnight, market participants have come to accept inflation – and in its wake interest rates – will stay higher for longer than previously anticipated. As a result, rising bond yields have been one factor pushing equity markets lower. Still, this rise in yields has come about because of positive economic growth stories rather than stagflation fears.
Inconclusive recession indicators leave markets guessing
Recession talk has been rife over the last year. On the comedown from the post-pandemic sugar rush, demand has slowed in all developed markets, while interest rates have risen to levels last seen more than ten years ago, and supply-side crises threaten economic stability. Media commentators – and even some policymakers – are telling investors and the public to brace for an upcoming global recession. These calls are backed up by many classic contraction signals: bond market upheaval, compressed business sentiment and mortgage credit stress depressing housing market activity. Contrary to this though, several key indicators are suggesting things are not so dire: employment is strong, consumer demand is resilient and equity valuations are still relatively high. With all these mixed signals, what should we make of recession chances?
European gas prices
Britons are bracing for another energy price hike next month. The government’s energy price guarantee – currently at £2,500 per year per household – will rise to £3,000 in March, unless the Treasury’s plans change. That seems unlikely, despite pressure from major industry players. Last week, Emma Pinchbeck, chief executive of Energy UK, argued it is “essential that that support stays in place” until the autumn, when Ofgem’s price cap is expected to be significantly lower. Chancellor Jeremy Hunt was unmoved though. The recent fallback in wholesale gas prices – which should give the Treasury some breathing room – will only have a “marginal” benefit to public finances, according to Hunt.