The Cambridge Weekly – 30th August 2022

Delicate equilibrium

All eyes were on the world’s central bankers last week, who were guests of the US Federal Reserve (Fed) at its annual conference in Jackson Hole, Wyoming. Markets were particularly eager to hear what Fed chair Jay Powell had to say – hoping that his speech would give hints on the direction of US and global monetary policy. Market expectations of a mildly hawkish tone, with a repeated focus on controlling inflation and cooling wage demands ultimately proved not too far from the mark.

Strategies to mitigate Europe’s energy crisis

Europe is in trouble. Recent data points to a contraction of the continent’s economy, and businesses expect dire times ahead. The root cause is plain to see: a critical lack of energy supplies. Russia’s invasion of Ukraine and the subsequent western sanctions regime have had a huge impact on global energy markets, but nowhere has this been as pronounced as in Europe. Natural gas, which provided a quarter of the energy used by the European Union (EU) in 2020, is around eight times more expensive in Europe than in the US.

Business sentiment has taken a hit

Sentiment surveys of consumers and businesses have a good track record of predicting the economic outlook. This is true on both a regional and global basis, so investors pay close attention to the latest data. August’s data paints a not-so-pretty picture for the world economy. Consumers everywhere are not confident, and have not been so for some months. This is particularly true for Europe, where confidence measures continue to languish near or at record lows. At least the European Commission consumer confidence survey didn’t fall further, remaining around the lowest level ever. However, for the UK, the GfK consumer confidence survey for August recorded a new record low of -44.