A new world of heightened macro volatility and higher risk

Since Russia’s invasion of Ukraine at the end of February 2022, banks, governments, and individuals are forced to cope with a new world. Inflation is not just a trend, but it is a reality that we must live with for the next few years (at least).

   The Annual Report of the Bank for International Settlements analysis claims that by April 2022, most economies are experiencing inflation above 5%. It is mentioned that “a key factor in where global inflation is headed is whether wage-price spirals will take hold, as workers seek to recoup the loss in purchasing power and firms seek to overcome profit squeezes.”. However, is it possible to record both increase in purchasing power and corporate profit?

   “We are braving a new world of heightened macro volatility and higher risk premia for both bonds and equities,” strategists wrote in a mid-year report by BlackRock Investment Institute. Additionally, crypto markets are facing a major downturn. A blowout in the cryptocurrency market sparked a wave of layoffs, punished valuations and drove some companies to bankruptcy, according to world financial news. For instance, the crypto lender Celsius Network filed for Chapter 11 bankruptcy, the latest casualty of a 2 trillion-dollar crash that has exposed hundreds of thousands of individual crypto investors.

   “The volatility in commodity markets following Russia’s invasion of Ukraine has highlighted the risk of financial strains in these markets - through large margin calls, undetected leverage and concentrated exposures,” wrote Klaas Knot, chair of the Financial Stability Board of international regulators, who also heads the Dutch central bank.

   Meanwhile, the World Health Organization urged governments and health care systems worldwide to take further steps to tackle the COVID-19 pandemic event. It seems that a new huge wave (in terms of cases) is already started, expressing concerns about a rising trend of deaths as well.

   Hence, we are facing an era with tremendous pace of inflation, decreased household income, increased need for urgent governmental policies in the context of helping -not only- financially the most vulnerable citizens of each area, and a pandemic event that it is not over yet.