Stock Markets, Cryptos Could Fundamentally Shift Amid Instability

Stock Markets, Cryptos Could Fundamentally Shift Amid Instability

A dramatic sell-off in Bitcoin and other cryptocurrencies overtook a sharp pullback in the US stock market. (Shutterstock)

The stagnation and shadow of inflation in major world economies continues to fundamentally alter global markets, according to Bloomberg News.

Some fear that if interest rates rise, emerging markets will begin to decline, similar to what happened in US markets.

Political crises also play an important role in determining the outlook for global markets, ranging from tensions in Europe to the threat of ultra-nationalists and the conflict between China and Taiwan.

Prospects for the coming year are uncertain. We have to wait and see which of these scenarios will ultimately affect the global economy.

Stock market and crypto volatility

A dramatic sell-off in Bitcoin and other cryptocurrencies outpaced a sharp pullback in the US stock market as the Federal Reserve’s pivot of emergency support spooks investors who have piled into high-flying but risky assets during the pandemic.

The bearish momentum in equities has been fueled by escalating concerns over monetary policy as the Federal Reserve led by Chairman Jerome Powell seeks to intervene in rising inflation levels more aggressively than expected with more policy. strict and rate hikes.

As prices in the United States rise at their fastest pace in nearly 40 years, the Fed, which is under pressure to contain inflation, did not raise interest rates from their range of 0 to 0.25% at its January meeting of the Federal Open Market Committee, but said such a move “will be appropriate soon.”

The price of Bitcoin, the most traded cryptocurrency, has fallen from its November highs of nearly $70,000 to around $35,000. Since the beginning of the year, it has fallen by around 23%. Meanwhile, Ethereum, the second largest cryptocurrency, has done even worse, dropping around 35% since the new year.

The sharp declines were correlated with the selling off of high-risk assets, such as tech stocks, as investors brace for higher interest rates and tighter monetary policy from the Fed.

COVID-19 concerns persist

As the COVID-19 omicron variant triggers tighter restrictions on economic activities and the movement of people, it has become increasingly clear that the road to vaccine-induced immunity will face more nest-odds. -chicken.

Policymakers faced a very complex task to simultaneously improve public health, restore normal economic and social interaction, and respect individual freedom. They must now accept greater challenges. This could again lead to a global economic recession.

Given the new variant of COVID-19, governments have spent huge sums of money to protect workers and maintain jobs, but austerity policies appear to be controlling inflation – this will also increase the risks of a post-pandemic economic recession.

Inflation comes on top of the decline in employment and production, it reduces the purchasing power of American households. Although Fed officials have been saying inflation has been temporary for months, it has become clear that inflation continues to rise and set records.

Given the return of inflation and growth in major financial market indicators and fears of bubbles, people fear that the Fed will once again pursue austerity policies.

After two years of expansionist policies, this is not surprising. The logical consequence of such measures will be a recession in 2023.

Interest rate hikes will add to dollar strength, but for the world’s emerging economies, it could be a nightmare. As the dollar appreciates, capital outflows from emerging markets will increase. This sometimes leads to currency crises in these countries.

Europe sinks into turmoil

France and Italy are heading to the polls, and the rise of nationalists pessimistic about EU policy threatens to destabilize this part of the world. Furthermore, failure of trade negotiations between the UK and the EU could lead to a full-scale trade war – import duties could lead to price increases.

Food prices and turbulence

Hunger is a historical factor of social movements. Bad weather and the crisis triggered by COVID-19 have combined to drive up food prices on the global market. The collapse of food prices in 2011 triggered a wave of public protests in the Middle East.

Troubles in Taiwan

The world is still threatened by war. The escalation of tensions between China and
Taiwan could evolve towards a confrontation
between the great powers and evolve into another war, although this is admittedly a worst-case scenario.

Other circumstances threaten the global economy. For example, Taiwan’s semiconductor production has plummeted, and these parts are essential in the production of many things, from cars to cell phones.

2022 Optimistic Roadmap

US fiscal policy may be more expansionary than it currently appears. This pulls the economy away from the brink of financial stagnation and promotes global growth.

Many households are holding extra cash due to stimulus packages handed out by governments during the pandemic and forced savings during quarantines, if these savings are spent faster than expected, they will boost the savings. But China’s economic growth could accelerate.

Investing in green energy and affordable housing can fundamentally change global investing.

Tensions between the United States, China and Russia

No global peace structure can be stable and secure unless all parties recognize the legitimate security interests of others.

The best way for the major powers to begin to achieve this is to choose the path of mutual understanding and de-escalation vis-à-vis Ukraine and Taiwan.

China, Russia and the United States are inseparable parts of the same puzzle, where close cooperation between the three on the world stage guarantees lasting peace and stability for the rest of the world.

A military confrontation between the United States, China and Russia will likely occur in low-key skirmishes in buffer states, and given the circumstances, the outbreak of full-scale nuclear war is highly unlikely. The rhetoric will be limited to imposing occasional economic restrictions and sanctions on each other.

• Nasser Alshareef is Head of Department of Business Administration and Associate Dean of Faculty for Quality and Development at Majmaah University.

Disclaimer: The opinions expressed by the authors in this section are their own and do not necessarily reflect the views of Arab News