Is the Pandemic Still On? COVID Comes Back

The world has driven its attention towards the Russia-Ukraine crisis. Some of us don’t take the COVID pandemic as seriously as we did before.

However, the rise in cases in China over the weekend could put another layer of pressure on the global economy. Especially when the world already has stretched supply chains.

Ukraine’s two largest suppliers of neon signs, which make about half of the world’s key ingredient used to make chips, have shut down operations, threatening to raise prices and exacerbate semiconductor shortages.

Chinese stocks fell this morning. Domestic COVID-19 cases rose to a two-year high, prompting Beijing’s tech and financial hub restrictions.

It is unclear how severe the outbreak will prove and how much pain it will inflict on the global economy. Still, the economic fallout from Russia’s invasion of Ukraine has already hit hard.

Analysts have started to cut corporate earnings forecasts, with the European Central Bank on Thursday slashing its 2022 growth target to 3.7% from 4.2% while raising its inflation forecast to 5.1%.

All eyes this week will be on the Federal Reserve and U.S. producer price index (PPI) data. Analysts expect to see an annual growth rate of 10% on Tuesday. It will set the stage for a rate hike.

A quick look at the rapidly rising popularity of searches for “stagflation” in Google Trends confirms that central bank hawks and doves aren’t the only ones worried about an economic slowdown from soaring oil prices and rising interest rates.

Meanwhile, Wall Street’s pan-European Stoxx 600 and S&P 500 are both down more than 11% year to date, but futures this morning point to an excellent start to the week.

Given the low visibility on the macro front, deals in recent weeks have focused on the Russia-Ukraine crisis and diplomatic efforts to end it.