(Updates story first published on Friday, adding China data to
theme three and Russia story link to theme five.)
How to dampen inflation without slamming the brakes on growth?
That's the tricky job central banks face. But as others grapple
with soaring prices, we will see how hard China's COVID
lockdowns are snarling up trade and slowing its economy.
And another complication -- M&A deals worth over $400
billion are waiting for financing, but costs are rising fast.
Here is your week ahead in markets from Lewis Krauskopf in
New York, Tom Westbrook in Singapore, Andres Gonzalez in Madrid;
Dhara Ranasinghe and Karin Strohecker in London.
1/NAME OF THE GAME
Red-hot inflation is infusing central bankers with a sense
of urgency. The Fed delivered its biggest rate rise in 22 years,
Australia hiked by more than expected and India weighed in with
an out-of-meeting move.
But the policy tightening rush is adding to the storm clouds
gathering over the world economy, hit by soaring food and energy
prices, war in Ukraine and China's COVID curbs. The Bank of
England while raising rates, also flagged recession risks
.
Germany's ZEW sentiment index and preliminary Q1 UK GDP data
will highlight the tightrope central banks are walking. And in
emerging markets, Mexico, Peru, Malaysia and Romania are likely
to confirm the rate hike cycle continues.
2/INFLATION STATIONS
Is U.S. inflation peaking after the fastest surge in over 40
years? The April consumer price index, due on Wednesday, will
show.
March CPI came in at 8.5% on an annualised basis, as
gasoline costs hit record highs. On a monthly basis, CPI jumped
1.2%, the biggest gain since September 2005.
Early forecasts are for a 0.2% monthly rise.
The March inflation surge probably sealed the Fed's 50
basis-point rate rise on May 4. The upcoming inflation print
could sway expectations for how monetary policy will be adjusted
going forward.
3/SPRING BREAKDOWN
China's anti-COVID lockdowns give every indication of
stretching through the spring. Alongside the strain on tens of
millions of people, damage to the economic outlook - in China
and globally - is immense.
And markets' patience with limited policy support is wearing
thin. Data on Monday shows China's exports growth hit a two-year
low in April, highlighting that the world's second biggest
economy is struggling under lockdowns.
Iron ore, oil and copper prices are already wavering. In the
teeth of a steep U.S. hiking cycle, the slowdown also bodes ill
for the wobbling Chinese yuan and in turn, for the
foreigners who have placed their money in local markets.
4/ OIL AND PRIDE
Banning Russian oil imports seems to be a question of when,
not if, for the European Union. The bloc is close to agreeing
its sixth and fiercest package of sanctions against Moscow for
invading Ukraine, according to the bloc's top diplomat.
The centrepiece of the package is a phased embargo on
Russian oil, which makes up over a quarter of EU imports. The
move will push European refineries into a race to find new crude
suppliers and leave drivers with bigger bills at the pump at a
time when the cost of living crisis is squeezing consumers
globally.
Meanwhile Russia will hold the annual May 9 Victory Day in
Moscow to mark the anniversary of the Soviet Union's triumph
over Nazi Germany. The Kremlin dismissed speculation that
President Vladimir Putin planned to declare war against Ukraine
and a national mobilisation on the highly symbolic day.
5/WAITING FOR MONEY
Global dealmaking is recovering after a first-quarter slump
caused by Russia's invasion of Ukraine.
April M&A rose 30% from March to $387 billion, and included
mega deals such as Elon Musk's $44 billion buyout of Twitter and
a 58 billion-euro ($61.04 billion) bid by a consortium for
Italian airport and motorway operator Atlantia.
Now the M&A market faces another challenge - funding.
Globally, more than $400 billion worth of deals have been
announced since January but not completed, Refinitiv data shows.
M&A deals typically include 'staple financing', a
pre-arranged package offered to potential purchasers to finance
the acquisition. Once the deal is agreed, the buyer can
syndicate the financing, inviting other banks to join. Or it can
tap bond or equity markets.
But funding costs have spiralled since the deals were
agreed. Average global corporate debt yields have soared 100
basis points since the Feb. 24 invasion, and by 150 bps on
junk-rated U.S. companies, ICE BofA indexes show.
That's left some enormous deals hanging. They include
Microsoft's purchase of Activision Blizzard (ATVI), Musk's Twitter
acquisition and an investment by Macquarie and the British
Columbia Investment Management into Britain's National Grid.
($1 = 0.9502 euros)
(Compiled by Sujata Rao; editing by Tomasz Janowski)
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