What’s happening: Goldman Sachs has lowered its forecast for US economic growth in 2022. It now sees little to no growth in the first three months of the year.
Goldman economists, led by Jan Hatzius, said the likelihood of a recession in the United States has risen by as much as 35% in the coming year.
“Rising commodity prices are likely to put a brake on consumer spending as households — and especially lower-income households — are forced to spend a higher proportion of income on food and gas,” they told customers on Thursday.
Real-time consumer confidence data from Morning Consult and Ipsos “show a marked decline in consumer confidence since Russia invaded Ukraine,” they noted.
It won’t be the only source of stress. Financial conditions have also been tightened, which may make it more difficult for companies to obtain cash. Europe’s woes will also hurt American companies with global supply chains and operations.
Step back: Severe sanctions against Moscow after the invasion of Ukraine are putting pressure on Russia’s economy. The Institute of International Finance predicts it will contract by 15% this year – a recession twice as severe as the one following the global financial crisis.
But because Russia is a major exporter of oil and gas, as well as important agricultural products and industrial metals, the effects of its economic collapse and isolation will be felt worldwide. Europe, which is heavily dependent on Russia for energy, is the most exposed, but the spike in energy and food prices will also be felt across the Atlantic.
“Inflation is a problem, and it’s a problem we need to address, but I don’t expect a recession in the United States,” Yellen said.
But Goldman Sachs analysts aren’t the only ones finding that risks are increasing.
This increases the pressure on the Federal Reserve as it calculates its next move. The central bank plans to raise interest rates this month to bring inflation under control. However, if it withdraws support for the economy too aggressively, a recession could become more likely.
The European Central Bank said on Thursday that it will tighten money taps earlier than expected despite the war in Ukraine. The aggressive tone surprised investors.
Investor Insight: High inflation and slower economic growth, along with uncertainty about how much central banks can really do to intervene, will not give investors confidence as the war continues.
Wells Fargo has lowered its year-end 2022 target for the S&P 500. He still thinks the index could rise sharply from current levels. However, the bank acknowledged that economic conditions related to the war are likely to hit corporate profits, weighing on stocks.
Wall Street Joins Withdrawal From Russia
The latest: Goldman said it is “phasing out its operations in Russia in accordance with regulations and licensing requirements.” JPMorgan quickly made a similar announcement.
The departure follows a struggle by Western banks to count their exposure to Russia after President Vladimir Putin ordered the invasion of Ukraine, leading to punitive sanctions covering most of the country’s financial system – including the central bank and main commercial lenders, VTB and Sberbank.
They also come after Western firms have been stomped out of nearly every other sector of the Russian economy, as rating agencies warn that a Russian default is imminent.
Remember: Detaching Russia from the global financial system will not be easy, and the full extent of the consequences is still unknown.
International banks are owed more than $121 billion from Russian entities, according to the Bank for International Settlements, which suspended Russia’s membership on Thursday. European banks have a total of more than $84 billion in receivables. France, Italy and Austria are the most exposed. US banks have a debt of $14.7 billion.
Banks are also concerned about their employees in Russia and what Moscow might do next.
Kremlin spokesman Dmitry Peskov said on Thursday that the economic situation in Russia is “absolutely unprecedented” and accused the West of an “economic war”.
Meanwhile, Putin has backed plans to seize assets left behind by Western companies that have suspended or shut down their operations in Russia.
Chinese tech stocks hit hard again
The future of major Chinese stock trading on Wall Street has once again been questioned, causing shares to fall dramatically.
The list included fast food company Yum China Holdings, technology company ACM Research, biotech group BeiGene, Zai Lab and pharmaceutical company Hutchmed.
But large technology stocks also fell. Investors are concerned that more companies could be added to the list of the US regulator.
Alibaba fell more than 5% in Hong Kong on Friday. The US-listed stock lost nearly 8% on Thursday. JD.com plunged 11% in Hong Kong after closing 16% lower on Wall Street. Baidu fell nearly 5%, after a 6% drop in the United States.
Other companies with double listings in the United States and Hong Kong also fell sharply.
Why it matters: Tensions between Washington and Beijing have been pushed into the background for the time being due to the war in Ukraine. Yet deep divisions remain between the world’s two largest economies, contributing to the complex geopolitical environment that policymakers must navigate.
Next one
The most recent consumer confidence survey from the University of Michigan was released at 10 a.m. ET.
Next week: The Federal Reserve is expected to raise interest rates for the first time since the pandemic.