The Cambridge Weekly – 4th July 2022

Energy price shock turns into central bank focal point

More than two years since the COVID virus hit Europe, it is clear that most peoples’ livelihoods have been affected more by the policy ‘medicine’ than the virus itself. Of course, without those interventions which were needed until vaccinations become prevalent, it most likely would have been the other way around. As we start the second half of 2022, the excess monetary liquidity now draining from markets – the unavoidable consequence of those pandemic-fighting measures – is hitting the global real economy and thus lowered market valuations.

The Credit Crunch starts to bite

It has been a tough year for investors. Hit by the dual pressures of rising interest rates and a looming global recession, major equity indices have sold off considerably and government bond yields have spiked. But while stocks and sovereign bonds regularly make the headlines, the travails of corporate credit markets often have a much more direct impact on companies and, by extension, the economy. Things are not looking good in that regard – with the cost of financing increasing dramatically for many businesses.

China shrugs off Covid fears – but for how long?

Chinese President Xi Jinping travelled to Wuhan, the pandemic’s epicentre, to deliver a speech on the importance of harsh Covid restrictions. That may sound like a headline from the start of 2020, but it happened last Tuesday. In a speech reaffirming the Communist Party’s strict zero-Covid policy, Xi announced he would rather “temporarily sacrifice a little economic growth” than “harm people’s health”. Given how long the policy has been in place, one might wonder how temporary that sacrifice will be.