US inflation and geopolitical tension: Handelsbanken explains the week’s global economic news

Handelsbanken have summarised the latest economic news as financial markets react to US inflation figures and growing geopolitical tension between Russia and Ukraine.

US inflation at 40-year high
American inflation figures took markets by surprise, with the USA’s Consumer Price Index showing price growth at a 40-year high. Growth in wages is also starting to follow suit in American employment markets, and while inflation is anticipated to peak in the coming months, it may settle at a higher rate than we have been accustomed to in recent years.

Central banks to pull back from pandemic emergency policy measures
Financial markets are increasingly turning away from Covid-19 data, as the Omicron variant has shown not have led to the extreme stresses on healthcare seen in previous pandemic waves. Against the backdrop of many countries ending the restrictions, including in the UK, central banks are expected to follow suit and pull back from emergency policy measures brought in to combat the worst economic impacts of the pandemic. Investors should however be wary of volatility in financial markets as they readjust.

Largest US corporates report fourth quarter results
Over 70% of the world’s largest companies have already reported their results for the fourth quarter of 2021, and delivered their outlooks for the future. Most organisations have reported higher-than-expected earnings, including strong results from Amazon announced late last week. Overall, the picture painted is of ongoing growth, albeit at a slower rate. Supply chain pressures also appear to be receding.

Weekly market moves

• Bond market indices fall in response to high inflation and the possibility of US interest rate rises.
• US markets fell as the week drew to a close, with geopolitical concerns surrounding Russia and Ukraine creating additional unease, and markets in Europe and Asia opened playing ‘catch down’ on Monday.

What to look out for this week

• The latest UK inflation data will be released on Wednesday.
• Central bank leaders and finance ministers from G20 nations will meet on Thursday and Friday.