Inflation: Andrew Haldane warns prices could rise until 2024
A bruising session on global stock markets left London’s investors with a headache on Monday with a drop led by gambling companies and miners.
The FTSE 100 ended the day down 2.3 percent, a fall of 171.36 points to 7,216.58. It comes amid a rough session of trading as US and European shares traded down partly in anticipation of new inflation figures from a number of countries.
Miners Antofagasta, Glencore and Anglo American were among the worst hit stocks on a poor day for the commodities heavy FTSE. Energy giant BP also fared badly.
Danni Hewson, an analyst at AJ Bell, said: “Talk of recession is rife as markets really begin to price in a series of interest rate rises as central banks remain under pressure to help people out of the cost-of-living crisis they’ve found themselves slap bang in the middle of.”
In Europe, the German Dax closed down 2.2 percent while Paris’s Cac 40 dropped 2.4 percent.
While in the US, the S&P 500 was down 2.8 percent around market close in Europe while the Dow Jones lost 1.6 percent.
Stocks have fallen around the world
An exterior view of the Bank of England in the City of London
The S&P 500 hit its lowest level since April 2021, losing 116.11 points or 2.82 percent.
Apple shares had the heaviest impact on the index as well as on the Nasdaq.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4 percent with Japan’s Nikkei dropping 2.53 percent.
US investors are worried about how aggressive the Federal Reserve will need to be to tame inflation.
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Traders at the offices of IG markets in the City of London
A view of the City of London from Canary Wharf
The US central bank hiked interest rates by 50 basis points last week in a bid to lower inflation without tipping the country’s economy into recession.
Central banks in Britain and Australia also raised interest rates with investors bracing for more tightening as policymakers battle against soaring inflation.
The Bank of England sent a stark warning last Thursday that Britain risks a double-whammy of a recession and inflation above 10 percent.
Former Bank chief economist Andy Haldane cautioned on Monday that soaring levels of inflation could last for years rather than months.
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The Bank of England’s base rate from 2012 to June last year
Mr Haldane, who is now chief executive of the Royal Society of Arts, told LBC radio that the inflation crisis could continue into 2024 and peak even higher than the 10.25 percent predicted by the Bank last week.
He said: “This won’t be come and gone in a matter of months. I think this could be years rather than months.
“It’s certainly going to be the duration of this year, and I think prospectively, well into next or even the year beyond.”
Investors have also been rattled by an economic slowdown in China after a recent spike in coronavirus cases.
The New York Stock Exchange in Wall Street, Manhattan,
They are also tense ahead of the US consumer price report due on Wednesday.
Only a slight easing in inflation is forecast there, leading some to conclude there is nothing to stop the Federal Reserve from hiking its interest rate by at least 50 basis points in June.
Kristina Hooper, chief global market strategist at Invesco in New York, said: “Markets are digesting the start of a return to a more normal monetary policy environment.
“Moving more aggressively (on rates) raises the spectre of a recession, especially with all of these complications – high inflation, Russia’s invasion of Ukraine, Covid-related supply chain disruptions.”
CMC Markets analyst Michael Hewson said the natural resources sector had been badly hit by new trade data from China which showed a collapse in imports to the country.
He said: “The stubborn pursuit by Chinese authorities of a zero-Covid policy is raising concerns that it will have a chilling effect on the Chinese economy in the months ahead, and with Beijing and Shanghai tightening curbs on residents of those cities, we appear to be seeing a realisation that supply chain issues may still have some way to go as far as downside risk is concerned, with dire consequences for growth prospects.”
Oil prices tumbled almost six percent on Monday as the continued coronavirus lockdowns in China fuelled worries about the demand outlook.
US crude recently fell 4.35 percent to $105.00 per barrel while Brent was at $107.87, down 4.02 percent on the day.
As investors juggle so many worries they are looking for safety in the dollar, which is soaring against most other currencies.
The dollar index, which measures the greenback against a basket of currencies, rose as much as 0.4 percent to 104.19, the latest in a string of 20-year highs.
But the soaring dollar is hammering other currencies with the euro dropping back below $1.05 while the Japanese yen fell to its weakest since 2002. Sterling was last trading at $1.2343, up 0.05 percent on the day.
Even if a recession is avoided, the outlook for US stocks is not particularly bright, according to strategists from Goldman Sachs.
Bloomberg reports that strategists led by David Kostin said in a note to clients: “Swings will remain large until the path of inflation is clarified.”
They added that “tightening financial conditions and poor market liquidity make it difficult to argue for a short-term rally similar in size to the one in late March”.
Dennis DeBusschere, founder of 22V Research, said: “The big question is if inflation can head below three percent without the Fed causing a recession.
“Until that question is answered, financial conditions are biased tighter and markets will struggle despite oversold conditions.”