Iran Standoff Inflation Fears, StanChart CEO Apologizes, More
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What is the main topic discussed in this episode?
News when you want it with Bloomberg News Now. I'm Caroline Hepker.
The U.S. war on Iran is triggering another wave of price hikes across a global economy that has barely recovered from the last inflation shock. Investors are also starting to worry about the implications for the more than $50 trillion market for G7 sovereign bonds.
How is the Iran conflict impacting global inflation?
Bloomberg Economics says the oil shock caused by the closure of the Strait of Hormuz is ending the global trend of disinflation. Higher crude, gas and shipping costs are lifting prices across major economies. The impact is clearest in America and Europe. US CPI is moving back towards 4%, while inflation in the euro area has risen by about one percentage point. Ali Dorawalla is co-CIO at Rock Creek.
The risks just keep multiplying in terms of what investors have to think about and interest rates, consumer sentiment. What is driving inflation? If we don't have some resolution in terms of energy prices, we think all of that will continue to be an increased risk to portfolios. And it will mean more bond volatility, which I think investors have not gotten used to.
Ali Dorawalla speaking there, as Rapidan Energy has warned that a closure of the Strait of Hormuz until the end of August would raise the risk of an economic downturn approaching the scale of the 2008 Great Recession. In its latest note, Rapidan said that if the waterway remained shut until August, it would deepen the third quarter supply deficit to roughly six million barrels a day.
Now, a story we've been covering this week. Standard Chartered's CEO has apologised for his comments earlier this week about how artificial intelligence will affect, quote, lower value human capital. Writing in a post on LinkedIn, Bill Winters said that he recognised that his choice of words has caused upset to some colleagues. The note came just hours after Winters doubled down on his remarks in a separate LinkedIn post saying, He wrote that the bank has for many years invested in helping staff whose roles have been upended by automation. The initial backlash came as the London-based lender disclosed plans to eliminate close to 8,000 support roles over the next four years, making it one of the first global banks to set out how it expects AI to work.
to trim headcount. Well, the EU is slashing its growth forecasts as the scale of the fallout from Iran becomes clearer. The bloc now expects euro area GDP to increase by 0.9% this year compared to 1.4% last year. Economy Commissioner Valdis Dombrovskis says both growth and inflation are going in the wrong direction.
It basically confirms what we saw coming, which is stagflationary shock to European economy, meaning a simultaneous slowdown of economic growth and increase in inflation.
Dombrovskis adds that if energy prices stay higher for longer, growth prospects for the EU will be roughly halved both this year and next year. The Commission has called for restraint, though, from European countries, despite the downturn, fearing a breach in the EU's fiscal rules.
UK retail sales have fallen at the fastest pace in nearly a year as consumers pulled back spending. The 1.3% drop came as GfK's Consumer Confidence Index showed sentiment among the UK's lowest earners plunged in May. The data highlights how the fallout from the Middle East conflict is being felt unevenly, with spending habits among higher earners proving more resilient to the energy shock. In a bid to address that, the UK's Chancellor, Rachel Reeves, yesterday set out measures aimed at easing the cost of living crisis.
First of all, we have extended the freeze on fuel duty until at least the end of this year. I understand how concerned families and businesses are at the moment about the implications of the conflict in the Middle East. This is not a war that we started. I've been very open in my views that this war was a mistake. But regardless of that, it is having an impact on people here in the UK.
What are the implications of rising energy prices on economies?
However, Rachel Reeves ruled out universal energy bill support in her announcement yesterday.
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