So much uncertainty

Negotiations resume in Turkey between Ukrainian and Russian representatives with a view to reaching a ceasefire. The Ukrainian counter-offensive on the ground suggests that the balance of power may be shifting, but caution is needed. Similarly, it is difficult to assess the economic consequences of the anti-Covid restrictive measures in China. The prospects for monetary tightening in the US also raise questions: could the US economy withstand such a shock treatment (a rate hike of almost 250bp this year)? Probably not, and this is reflected in the flattening of the yield curve and even its inversion in certain segments: the risks of recession are increasing. Finally, what about the consequences of the war in Ukraine on the European economies? Most estimates of the impact on growth are based on higher inflation, but the rebound in supply chain disruptions will be a key element that should not be overlooked.

Even if long rates have stabilised, the continued rise in equity markets looks increasingly fragile in this context. Household confidence indices released this morning showed a sharp decline in both Germany and France. Will the Conference Board index follow this trend in the US? More sensitive to the employment market, it has so far held up better than the University of Michigan index, which is more dependent on income trends (and therefore strongly affected by the rise in fuel prices).