“Could be the worst in history”
Like the ankle bone, leg bone, and knee bone in the children’s song, the various parts of the global economy show just how tightly connected they are as the ongoing war in Ukraine, which unfortunately turned out to be much more than just saber rattling, reverberates. Many developed trends we’ve been following have been amplified, and new ones are emerging. Energy prices are throwing a spanner in European industry. Container pileups are adding to the list of shipping snafus. Agricultural supply chains are once again on the fritz, both from first order (Wheat” traded up by its daily limit for six consecutive sessions“) and second-order effects (Fertilizer producer Yara announced it was “temporarily curtailing production” at two of its European plants “as a consequence of record-high natural gas prices in Europe”). And, amid all of the commodity chaos, the LME “faced a choice” and “suspended the nickel market” when the price of the metal exploded higher after “an ill-fated trade”.
Amid all of the chaos, the rules appear to be in flux, and the LME isn’t the only one playing a little bit of Calvinball, as policymakers appear to be making it up as they go along. China is implementing policies “to safeguard the area of farmland” as it braces for what could be its worst winter wheat crop “in history”. Meanwhile, Egypt “banned the export of wheat and other staples for three months“, as the World Bank warns of ramifications of food insecurity. There are even plans in the works from the European Union to do a “joint bond sale to fund energy and defense spending“.
However, how all of this makes its way into the decisions of central bankers remains to be seen. Though Lagarde and company said that the Ukraine conflict was a “watershed“, it zigged to the hawkish side (related, Italian PPI in January was 41.8% YoY), speeding up the rate of its taper, “accelerating its exit from extraordinary stimulus“. Next week, we’ll see if Powell and the FOMC take a similarly hawkish tone given today’s CPI reading of 7.9%, the highest since 1982. The pressure is clearly on when the former dove, queen of coo, Janet Yellen, is saying, “inflation is, first and foremost, the job of the Federal Reserve” and says that “we have to look to the Federal Reserve to take steps to bring down inflation”. Good luck, Jerome!
