Global Financial Conditions Most Tightest Since 2020, Long-Run Inflation Seen On Horizon

After the trading session on Monday, the major stocks dropped in value. The blame is being put on the ongoing Russian invasion of Ukraine.

According to the reports, due to the ongoing crisis between the two countries, the financial conditions have been the tightest since 2020.

According to the data from the morning trading session of Monday, bond markets will continue to reflect a harsh economy, adding inflation of 2.79% over the next decade.

At the end of the trading day on Monday, Wall Street has roiled once again as major stocks plunged during the day’s trading sessions. Most news outlets indicate the Russia-Ukraine war is causing a bleak outlook, and reports show strained financial conditions worldwide are currently the tightest since 2020. Meanwhile, bond markets during Monday’s trading sessions indicate increased inflationary pressures may be on the horizon.

Concerns Raised Over Worsening Financial Conditions Worldwide

Various stocks, including the S&P 500, Nasdaq, NYSE, and the DOW, experienced a drop in their value during Monday’s trading sessions, causing frustration among equities traders. Except for this time, the blame is being put on the Russia-Ukraine Crisis instead of the pandemic.

Military warfare has been brutal; there is no doubt. However, the Russian economy has significantly suffered from the economic sanctions put up by the EU and the West. However, economists observe that the sanctions are taking a toll on the economies worldwide. The IMF (International Monetary Fund), giving a warning, said, “economic consequences are already very serious.”

The massive rise in food and energy prices have caused an enormous tightening of financial conditions, along with the liquidity issues of de-platforming Russia. The 2/10’s swaps curve is at 15bps and will hit zero soon, showing how tight conditions really are. 1/
— Raoul Pal (@RaoulGMI) March 4, 2022

The IMF further explains that “extraordinary uncertainty” is being created due to warfare and sanctions. There are chances that inflationary pressures can be caused, supply chain disruption, and price Shocks. Reuters reported on Monday the current financial conditions are the “tightest in two years.”

On March 11, 2020, otherwise known as ‘Black Thursday’ ’was the last time that the crisis situation majorly affected markets on a global level. Rene Albrecht, the strategist at DZ Bank, noted that if inflation rises and central banks take their mandates seriously, the financial conditions could worsen.

Impact On Bond Markets

As per the data collected from Monday morning’s trading sessions, bond markets continue to mirror a harsh economy and added inflation of close to “2.79% over the next decade.”

Irrational price action in financial markets is always disconcerting to watch. We are seeing a lot of this right now in a wide range of markets… commodities and bonds in particular
— Stephen Koukoulas (@TheKouk) March 7, 2022

In the past few weeks, bond markets have been through a phase of discontentment and extreme volatility. On March 2, Travis Kling, Ikigai Asset Management’s chief investment officer, explained that the Fed cut rates were 100bps and did three trilly of QE in six weeks; the last time bond market volatility was this much.

The secular bull market that began in 2009 was stoked by an aging population, slower labor-force growth and a corresponding secular decline in interest rates since the early 1980s. Investors ran out of yield in the bond market, extended their search for income to stocks. pic.twitter.com/7gBrlqK47m
— Jurrien Timmer (@TimmerFidelity) March 7, 2022

Matthew Luzzetti and Deutsche Bank economists showed concern about the stable inflation and the irritability it would cause to the U.S. central bank in a March note addressed to Barron’s Alexandra Scaggs.

The crypto economy also couldn’t escape the wrath of an uncertain economy, while stocks have also been significantly down in recent times. Since yesterday, the crypto economy has significantly dropped to $1.78 trillion, losing 2.8% against the U.S. dollar in 24 hours.

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Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing