Global Economic Review: February 2022



Omicron Followed the Script as the seven-day average cases peaked in the US on January 11th per Reuters at 704k, and quickly fell off to 63k by February 28th. US average deaths per day peaked at 2.7k in mid-February and fell to 1.5k.  We are still awaiting the revisions to the COVID data collection related to the UK’s health service announcing that up to 60% of COVID patients in hospitals are not there to be treated for the virus but are “incidental” admissions.  New York state made a similar announcement in early January.  Remember that the CDC halted the use of the old PCR test January 1st but unknown if 100% of the current tests differentiate between COVID and flu as directed by the CDC.  With Reuters reporting that Israeli data showed that a fourth shot has little effectiveness against Omicron and a Swedish study that looked at 10% of their population (973k subjects) and found certain adverse events looked to be more prevalent after taking the shots, even accounting for a 95% confidence interval (  Finally, fortunately, there is no new dominant variant at this time.  As always, our thoughts and prayers go out to those taken ill and we hope that they have access to proper care and recover fully. 


Ukraine:  Remembering Deterrence 


I wrote a piece on the old but apparently forgotten subject of deterrence. It is a separate attachment to the performance email.  To summarize:  To deter aggression and keep talks going at the negotiating table, a credible NATO military force kept the peace, at least at an overall level (regional wars to the contrary).  With the end of the Soviet – US arms race, “peace dividends,” a shattered Eastern Bloc and an aimless NATO became the norm as politicians (particularly in Europe) became enamored with “soft power,” the power to persuade, rather than “hard power,” the power to coerce.  Last month the US/Europe sleepwalked into a rude awakening due to the last few decades of negligence and wishful thinking:  damaged large-scale military credibility and energy/economic dependency.  After two weeks of fighting, there is a change of attitude but how well it takes hold is too soon to tell.  Soft power offers the best future for humanity but we have not yet left the hard power phase.  Given the current situation, probably the best outcome is that the fighting does not escalate, a ceasefire takes hold and forces return to status quo ante in short order.  Not the current trend unfortunately.


Macro:  US

Highest Inflation since 1982

  • US Q1 GDP growth from the Atlanta Fed was estimated at +0.0% – it seems to me that they are trying to avoid using the word “recession.” US consumer prices year-on-year continued higher to +7.5% year-on-year in January, with more price increases expected in shipping, housing and consumer products in 2022.  This is the highest broad price increase since 1982.  Core inflation likewise accelerated to +6.0% year-on-year.  Both numbers beat estimates.  With unemployment at 3.8% and a slightly higher participation rate of 62.3%, one should expect further wage increases without greater working-age and retiree participation.  S. retail sales surged +3.8% month-on-month in January, nearly double market expectations and more than making up for the downwardly revised decline of -2.5% in December, suggesting consumers will continue to drive growth and stoke inflationary pressures.  40-foot container shipping rates have peaked but not fallen, with Far East to North Europe holding at $14,000 and $8,000 for delivery to the US West Coast.


  • Fed Chair Powell Reiterated Plans to halt bond purchases and increasing interest rates in March (presumably at the March 15-16th meeting). Further hikes and letting bonds mature off their bloated balance sheet were open questions, especially with the new issue of fighting in Ukraine.  In recent Congressional testimony, Powell insisted on being “nimble” and did not commit to any plan or preconceived tool.  Recalling that the Fed owned 25% of all US Treasuries and 33% of mortgage-backed securities, one should prepare for higher moves in interest rates, for the US and globally.  US mortgages already are well off their lows, hitting 3.9% for 30-year fixed rates after the low in late 2020 at 2.7%.  As the graph to the right shows, the Federal deficit has never been wider on the massive spending programs by the last two US presidents and thus stoked the high inflation rate.  The US national debt moved above $30 trillion for the first time with a $7 trillion increase over the last 2 years. With the deficit still running at around $2.5 trillion, we should expect to see higher inflation rates, especially if more spending is added.  For example, in his “State of the Union” speech, Biden argued for another $2 trillion in spending under his “Build Back Better Act.”  We shall see what gets voted on and passed.


Macro: Europe


ECB’s Lagarde Spoke Tough at February’s European Parliament session but repeated that she will act gradually and at the “right time.” Lagarde warned that tightening monetary policy too quickly could jeopardize Europe’s economic recovery and that raising rates “would not solve any of the European Natural Gas Surgecurrent problems.”  Also, she noted that Russia’s invasion of Ukraine may delay but not halt the eventual end of QE.  Inflation continued higher at a +5.8% growth in February, faster than expectations of +5.6% and January’s figure of +5.1%.  Much of the pickup in inflation was driven by energy prices, which were +31.7% higher than a year earlier.  Core inflation also increase to +2.7%.  Soaring energy prices took their toll (see right), but a jump in Chinese imports drove the bloc’s trade deficit in goods to a 13-year high in December.  Overall, the long-running trade surplus with the world ex-China fell -45% to €128 billion in 2021 versus 2020.  The ECB estimated that if the high natural gas prices continued through 2022 that EU GDP would be reduced by -0.2%.


Macro:  Asia


Little Improvement in China’s Property Market as the average failure rate for January land auctions by local governments was 21%, despite land up for auction falling by -43% year-on-year. Remember that local governments depend on these auctions for revenue so with land sales weak, local government revenue declines and hence their ability to drive economic growth.  Exports rose during the combined January and February period versus a year earlier at +16.3% in USD terms but that was at a slightly slower pace than in December (+20.9%).  Some economists expect export growth to weaken after the first quarter due to a high base, and import growth became uncertain due to Ukraine war supply-chain disruptions.  Seasonally, peak demand for commodities should ramp up in Q2 and reportedly prices are going up – for example, China recently paid 139% more than what it did a year ago to secure potash imports from Canada and Israel.  Port congestion problems continued in mid-February per Bloomberg. 


David Burkart, CFA

Coloma Capital Futures®, LLC
Special contributor to aiSource