March Global Macro Monthly - After the first month
- The Ukraine war has added to broader global tensions. The Euro area recovery now faces challenges with European gas prices a key drag. Fiscal stimulus will offset some of the shock. This is less so in the UK.
- The war is another supply shock to the US. This will add to the Federal Reserve (Fed)’s difficulty in managing its dual mandate – its recent focus has pivoted to inflation expectations control.
- China faces domestic challenges. The Ukraine war does not help, but the bigger risk is its ongoing relationship with Russia. An aggressive 5.5% growth target suggests supportive stimulus to come.
- Markets have reacted to the war although initial risk-off sentiment has receded somewhat – albeit leaving some legacy in foreign exchange markets.
- Rates adjustments have been sharp as markets reassess the Fed’s policy outlook.