US Factories Stabilise Global Tensions Rise

There was a glimmer of hope in US Factory numbers on Friday. This according to the S&P500 Global PMI Index. Edging up to just 50.4 in April.

We really are looking at flat at best overall activity in the sector, and at very modest levels. The New Sales component rose for the first time in six months, but like a lot of data lately, slight recoveries have tended not to last very long at all.

In Germany, Industrial activity continues to tank and remains at GFC/Sovereign Debt Crisis/Covid Lockdown levels. Falling deep into contraction territory at just 44. A momentary stabilisation there has only resulted in a resumption of yet sharper weakness.

There is no doubt that the global economy is weakening and vulnerable to further slowing.

The new G7 ban on Russian exports is already having un-intended repercussions. The Ukraine Grain Export Deal between Europe and Russia now facing immediate collapse. Russia has already declared the deal void as a result of these latest sanctions. This could quickly lead to a resurgence in grain and food prices across the world. Adding significantly to some renewed energy contribution to overall inflation data as well.

Just as things were beginning to calm down, from a global markets perspective, there are developments in trade and on the battlefield in Ukraine that point to continued risk. There are also un-confirmed reports circulating that several NATO Generals, or very senior officers, were killed in a hypersonic missile strike on a Ukrainian command bunker near Kiev last week?

Things could be heating up behind closed doors a little more than we are generally aware of.

While US inflation peaked a long time ago on an annual headline basis, there has been a clear rekindling of very serious price pressures throughout the economy of late. Any repeat increase in prices, coming as a result of the on-going Ukraine conflict and the latest round of G7 sanctions, would quickly force another ratcheting higher of Federal Reserve rate hike expectations.

We are still a long way from conflict resolution in Ukraine and geo-political tensions in the China Sea continue to intensify. These issues can have a significant impact on the global economy as we have previously seen.

Sanctions and counter sanctions continue to pressure the global economy lower. This is why I do not see any sustained recovery in a major way for either Europe or the USA economies any time soon.

The outlook for US equities which closed very weak last week remains cautionary, if not dire.

Clifford BennettACY Securities Chief Economist

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