Key points
- Russias use of energy as a weapon pushes gas prices back to post invasion levels. The economist touts that the death toll from the energy weapon could exceed number of soldiers who have died so far. The relationship between winter deaths and energy prices is likely to change this year.
- The UK Supreme Court has ruled that the Scottish government does not have the legal authority to hold an independence referendum without agreement from Westminster, scuppering Edinburgh’s plan to have a vote next year.
- Are bonds back? Investors have poured almost $16bn into US corporate bond funds this month, underscoring how signs of easing inflation have helped brighten sentiment after a brutal sell-off in much of 2022. Whilst Wall Street expects the number of people on US payrolls rose by 200,000 in November from the previous month. This would be the lowest job creation since December 2020 and down from the 261,000 in October.
- Shares in China fell on Monday after protests the government’s harsh Covid-19 policies weighed on market sentiment and added to uncertainty about the outlook of the world’s second-largest economy.
Comment
The week following the autumn statement was politically muted in comparison to the standards set by the conservative party over the past 3 months. No resignations from government, no budget U-turns and they still trail considerably Labour in polls. However, The Office for Budget Responsibility, last week forecast that the UK economy would be in recession until the third quarter of 2023. The OECD, on Tuesday said it expected the UK to be the worst performer in the G20 next year bar Russia. They said in its latest economic forecasts that UK gross domestic product would fall 0.4 per cent in 2023 and rise a mere 0.2 per cent in 2024. It is predicted that the recession will probably deepen early next year, as households’ real disposable incomes are further hit next April by the government reducing subsidies for energy bills.
According to property portal Zoopla, housing demand is down 44 per cent since the day of the “mini” Budget. Plummeting demand has raised expectations that prices will fall next year, with the Office for Budget Responsibility forecasting a 9 per cent drop in house prices. Higher rates have derailed buyers all over the country, causing deals to collapse and forcing people who have saved a deposit to turn instead to the rental market, where increased demand is pushing up prices fast.
Elsewhere, whether Europe can steer clear of recession lies in how the energy crisis is managed. Vladimir Putin has made it perfectly clear that he will use tight restrictions of natural gas supplies as an economic weapon in the coming winter. The war represents a large “terms of trade” shock to the eurozone economy, in which import prices have surged disproportionately to export prices. Such large price fluctuations this winter could worsen the war’s economic fallout across the region. Such a terms of trade shock pushes inflation higher, squeezes incomes and hurts a country’s reserves and external debt. The euro has depreciated meaningfully, falling 12% versus the U.S. dollar year-to-date and below parity for the first time in two decades.
Whilst Shares in China fell on Monday after protests against the government’s harsh Covid-19 policies weighed on market sentiment and added to uncertainty about the outlook of the world’s second-largest economy. Demonstrations broke out in Beijing, Shanghai, and other cities over the weekend against harsh pandemic restrictions. The Hang Seng China Enterprises index dropped as much as 4.5 per cent whilst the decline on China’s CSI 300 index of Shanghai- and Shenzhen-listed shares was as great as 2.8 per cent before it was trimmed to about 1.1 per cent. This is also after China’s largest lenders are ready to pump over $162 Billion of credit into the country’s property market, as Xi Jinping’s government retreats from tight controls on leverage in the real estate sector that had sparked a property crisis.
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