Charting the Global Economy: Odds Recede for Bigger Fed Hike

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US longer-term inflation expectations cooled and higher prices were largely responsible for a healthy gain in the value of retail sales, prompting investors to dial back bets the Federal Reserve will boost interest rates later this month by an unprecedented full percentage point.

Odds of that steep of a hike in rates increased earlier this week after consumer prices rose 9.1% in the year through June, a fresh four-decade high. Central bankers in Canada opted for such a move, while officials in South Korea also strengthened their resolve to tame relentless price pressures.

Recession calls are growing in Europe amid record-high inflation and weakening investor confidence, though the planned reopening of a key Russian gas pipeline next week may somewhat alleviate imminent concerns.

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Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

US

US inflation roared again to a fresh four-decade high last month, likely strengthening the Fed’s resolve to aggressively raise interest rates that risks upending the economic expansion.

Consumer long-term inflation expectations declined in early July by more than forecast at the same time a recent drop in gasoline prices helped boost sentiment. Combined with solid retail sales data that reflected high prices rather than an uptick in spending, prospects receded for a full percentage-point hike by the Fed this month.

Europe

The planned reopening of a key Russian gas pipeline next week may be a bigger deal for the euro than the first interest-rate hike in a decade by the European Central Bank. Both are set for July 21. While the ECB’s plans to start lifting rates have been well flagged and hence priced in by markets, there’s more doubt over whether Russia will actually restore gas flows to Europe after maintenance on the Nord Stream 1 pipeline is completed.

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The risk of a euro-area recession is growing as the likelihood of natural gas shortages rises and inflation remains at record levels, according to economists polled by Bloomberg. The probability of an economic contraction has increased to 45% from 30% in the previous survey and 20% before Russia invaded Ukraine.

Investor confidence in Germany’s economy slumped to the lowest since 2011 as the country faces the growing prospect of a recession and risks mount that it’s shut off from Russian energy supplies.

Asia

China’s economy grew at the slowest pace since the country was first hit by the coronavirus outbreak two years ago, underlining the impact the pandemic and Beijing’s strict approach to controlling it has had on growth.

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China’s credit jumped much more than expected last month to the highest on record for June due to a strong rebound in bank lending and record government bond sales. The data indicates that stimulus from the central bank and government is starting to have an effect on boosting the supply of credit to the economy.

Emerging Markets

Russia’s current account surplus hit a record of $70.1 billion in the second quarter of the year, as surging revenues from energy and commodity exports helped offset the impact of US and European sanctions imposed over President Vladimir Putin’s invasion of Ukraine.

Bolivia says it’s on track to finally join the ranks of commercial lithium producers next year. That would be a big deal given it boasts the world’s biggest resources of the battery metal at a time of drum-tight supply. As neighbors Chile and Argentina cash in on an eight-fold surge in lithium prices fueled by booming electric-vehicle demand, Bolivia has struggled to commercialize the white, powdery metal trapped below its giant salt flats.

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World

Central banks across the globe are speeding up interest-rate hikes, seeking to crush an inflation surge partly of their own making. Wednesday saw Canada’s central bank hike a greater-than-expected full percentage point following two half-point moves, South Korea raise by a half point after several quarter-point moves, and New Zealand increase by a half point for a third straight meeting.

The underlying dynamics of oil supply and demand point to a prolonged period of higher prices, lasting months if not years. The impact on global economics and politics is profound.

A global taxation deal heralded as a “revolution” for the profits of multinational tech firms has run into a thicket of technical difficulties that will delay implementation to 2024 at the earliest.