While optimists are betting on central banks pivoting to interest rate cuts, along with China fully emerging from its Covid isolation and conflict in Europe abating, others are on the lookout for risks that may throw markets back into turmoil.Sign up to receive daily headline news from Ottawa Citizen, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc.
The flow-on impact: stocks and bonds falling further, dollar strength and more pain in emerging markets. Weighing against this optimism is the danger of the health system being overwhelmed as infections surge, and economic activity collapsing. Crowded hospitals and queues at funeral parlors have caused alarm in recent weeks, and been accompanied with a drop off in social mobility in major cities.Article content
The rebound in Chinese equities remains fragile and any prospect of stumbling in economic activity would sap demand in commodity markets, particular for industrial metals and iron ore.“If the war worsened and if NATO became more directly involved in hostilities and sanctions ratcheted up, it would be quite negative,” said John Vail, chief global market strategist for Nikko Asset Management.
An even more alarming scenario would be the use of a tactical nuclear weapon by a Russia — a threat that appears distant but within the realms of possibility. That could end Ukraine’s agriculture exports in one fell swoop.Many investors see dollar strength easing in 2023 and energy costs falling — two factors that would relieve pressure on emerging markets.