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Is a downturn around the corner?
The stock market records seem to point that way. There are challenges across the globe that might help catalyse the fall.
A few weeks ago, I came across an article that had chart comparisons that showed that the bull run since the 2020s was not too dissimilar from the bull run before the 2008 crash.
Source: Seeking Alpha
Of course, this is based on graphing and not actual reasons. But history repeats itself often. The patterns of the crash in 1937 and 2000 also looked similar.
The question that begs to be asked is what can precipitate the downfall?
Russian President Vladimir Putin banned the export of oil and oil products to foreign buyers that adhere to price caps imposed over his invasion of Ukraine, according to a decree.
The restriction applies to “supply contracts that directly or indirectly use the mechanism of setting a price cap,” according to the decree published in the official legal database and signed by Putin on Tuesday. ”The ban is in force at all stages up until the final buyer.”
The price caps are supposed to go live on the 1st Feb. This will change the price and supply dynamics of oil across the world if Putin holds to his statement. Europe has been already dealing with spiralling costs. This will only push those costs further up.
China and COVID
Covid is ripping through China and the country has removed every restriction that was in place. Japan is recording over 250,000 cases a day. China is not releasing its numbers.
There is a possibility that the numbers start to rise across the world as people start travelling for the Chinese New Year. The impact till now has not been considerable, but that all may change quickly.
Further, the Chinese case counts can lead to a reduction in manufacturing output which will in turn result in a slowdown in supply and consumption.
Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to the report. Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023—an increase of more than 2 percentage points over their 2021 average.
Unless supply disruptions and labor-market pressures subside, those interest-rate increases could leave the global core inflation rate (excluding energy) at about 5 percent in 2023—nearly double the five-year average before the pandemic, the study finds. To cut global inflation to a rate consistent with their targets, central banks may need to raise interest rates by an additional 2 percentage points, according to the report’s model. If this were accompanied by financial-market stress, global GDP growth would slow to 0.5 percent in 2023—a 0.4 percent contraction in per–capita terms that would meet the technical definition of a global recession.
Source: World Bank
The war on inflation results in a recession.
The inflation in the US has been caused by a decline in Chinese industrial output, not the Ukraine war. The US was barely importing any energy from Russia, which is why they were so keen on pushing through sanctions. If Saudi Arabia went to war, I would like to see the Americans show the same degree of enthusiasm. The oil prices in the US spiked and returned to pre-2021 levels, but inflation did not.
Unemployment rates were already at record levels due to COVID. The fact that is often forgotten is the west has a rapidly ageing population. COVID and the retrenchments offered many an excuse to retire. Thus, the job market has been hot.
Only 39% of Americans are in the age bracket of 25-55 years of age.
To add to it, the Trump-era policies combined with the slowdown in visa issues thanks to covid have resulted in fewer immigrants coming into the US.
As much as the Republicans hate immigrants. They are the ones who need them the most!
Immigration numbers have fallen by 30%. The Biden administration has not generated much enthusiasm either. The US Feds want to keep pumping the interest rates till job mobility and wage rises drop to a trickle. In their enthusiasm to see the workers’ power eviscerated, they might push the interest rates too far.
The spectre of War in Asia
Through 2022, America has been tempting China into doing the same thing to Taiwan that Russia did to Ukraine. Chip production is not moving away from China/Taiwan as quickly as the Americans would like. A war might help catalyse the move.
That notwithstanding, India and China are constantly flirting with war. Most recently in Arunachal Pradesh. Any of these flashes can turn into a fire.
So any of these or a combination of these causes can provide an impetus for the graph to slide.
What actually comes to pass, we will see in the coming months.