Macro commentary by eToro analyst for Romania, Bogdan Maioreanu
The latest data shows inflation may have peaked in some European Union countries, including Romania, with a similar situation in the United States. This is good news for the markets that are looking toward a slowing down of rate hikes by the Central Banks at a time when economies are bracing for a possible recession.
While we are seeing that the inflation decreased slightly from 15.05% to 14.96%, the adjusted Industrial output decreased in Romania with 3.9% in June compared with May and shows a 3.7% decrease compared with the same month of 2021. The main decreases were in the production and distribution of utilities that decreased with 4%, manufacturing industry with 2.8% but extractive industry increased with 1.6%. And Romania’s case is not singular.
The latest data coming from the United States is showing the general business conditions index plunged 42 points to -31.3, the second largest monthly decrease in the Empire State Manufacturing Survey on record. The new orders index dropped thirty-six points to -29.6, and the shipments index plummeted nearly fifty points to -24.1, indicating a sharp decline in both orders and shipments. Looking forward to the next six months, the index for future business conditions came in at 2.1, suggesting that firms were not optimistic. The indexes for future new orders and shipments were positive, but remained at low levels.
In a surprise move aimed at supporting a slowing down economy, People’s Bank of China decreased by 10 basis points the main rate that provides liquidity to banks to 2% and the one year lending facility rate to 2.75%. This was sending a new signal to markets that we might face a further global economic slowdown this year.
This PBOC rate decrease is coming after weak data of the retail sales that increased only 2.7% below the estimated value of 4.9%. Industrial output increased by only 3.8% versus the expected 4.3%. But the largest decreases are in the real estate sector where home sales decreased with almost 29% and the property investment decreased with 12.3%. Meanwhile China is seeing its unemployment rate dropping to 5.4%, slightly better than the June 5.5% but the youth unemployment rose close to 20% which is a new record. According to economists the slowing down of recovery might continue triggered by the zero Covid policy and the declining consumption.
Economists are seeing the risks for recession in Europe at the highest levels since November 2020. The Russia – Ukraine conflict and the fears that natural gas reserves will not be able to generate enough electricity this winter drove the Megawatt price to 477 Euros that is almost six times more than it was last year. Dutch Natural Gas futures reached 234 EUR per Megawatt hour with September delivery. All these high energy prices will increase the risks for a declining industrial production output in Europe adding to the recession potential. The latest Bloomberg survey is showing that the risk for a recession in Europe has increased to the highest level from November 2020. The probability of output shrinking for two straight quarters has risen to 60% from 45% in a previous survey, and up from 20% before the Russia – Ukraine crisis.
All this pessimistic data was bringing back recession fears leading to a decrease in the oil prices of 5%. It was helped by hopes of a potential breakthrough of the Iran nuclear deal negotiations. West Texas Intermediate plunged as much as 5.7% to fall below 87 dollars a barrel, the lowest in more than six months. Brent oil reached 95 USD per barrel.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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