The looming energy crisis, big tech's return to work and trouble in the land of bored apes
Making sense of the latest trends in property and economics from around the globe.
5 minutes to read
Russia - Ukraine
A Russian default is no longer an improbable event and global growth forecasts will likely be cut, Kristalina Georgieva, the IMF's managing director said during a media roundtable yesterday - transcript here. The IMF had estimated a 2022 global economic expansion of 4.9% last year, before cutting that to 4.4% in January. We'll likely see another downgrade next month.
Georgieva's comments come amid a mad scramble to quantify the conflict's likely impact on energy and food markets. If current prices persist, the extra cost of importing gas and oil will amount to an income shock of €550 billion euros, or 4.5% of the eurozone's annual GDP, according to a JPMorgan note cited by Bloomberg.
The UK is less exposed. Less than 4% of Britain's gas supply is from Russia, according to the FT. Nevertheless, soaring prices are deeply embedded across global energy markets in which the UK does buy gas. Stephen Ball, an economist at Goldman Sachs quoted in the FT piece linked above, predicts that the peak in headline inflation in the UK will shift from April to October, when he forecasts it will rise to 9.5%, and remain above 7% until next spring. Mr Ball "tentatively" predicts another 55% rise in energy bills this Autumn.
Inflation
The US consumer price index hit an annual rate of 7.9% in February after surging 0.8% during the month, according to data published yesterday. Food, rent and gas are driving gains and the report caught little of the rise in gas prices following Russia's invasion of Ukraine. The Fed has signalled it will raise the key interest rate by a quarter point at its meeting next week.
Yesterday's keenly watched European Central Bank meeting indicated that officials remain set on tightening policy to rein in inflation despite the changing outlook. The Bank may conclude its net asset purchases by the third quarter if inflation continues to run hot, though it maintained its position that it will only hike rates once those purchases are complete. It raised its 2022 forecast for inflation from 3.2% to 5.1%, citing “exceptional energy price shocks".
The results of the Bank of England's MPC meeting will be published next Thursday and the coming twelve days will provide a volatile run-in for Chancellor Rishi Sunak's spring statement on March 23rd. The Institute for Fiscal Studies estimates the chancellor will need to find another £12 billion to restore the level of support for households facing a jump in their domestic energy bills that he announced in February.
House prices
A net balance of +79% of RICS members reported a rise in UK house prices in February, up from +74% in January and its highest reading since June. The survey isn't online yet but you can see the Reuters write up here. Expectations for house price growth during the next twelve months remained strong across all regions.
Some slowing in house price growth is inevitable but it remains hard to say exactly when that will happen because it hinges on a rebalancing of supply and demand. The number of new prospective buyers registering with Knight Frank was 50% higher than the five-year average in February, while sales instructions were down by 5%.
As Tom Bill pointed out in his Monday note, the re-stocking of the shelves has been erratic, not helped by the fact owners have held back due to a shortage of purchase options. It’s a vicious circle that can’t be quickly reversed but the arrival of spring will accelerate the process.
The return to the office
Big tech wants its workers back. Apple has set an April 11th deadline for its employees to be working at least a day a week in the office. That will rise to three days by May 23rd. Google would like employees back in the office three days a week from April 4th.
For this week's episode of Intelligence Talks, Anna Ward is joined by Knight Frank’s global head of occupier research Lee Elliott and head of research for Asia Pacific, Christine Li. They discuss the thinking behind Google and Apple's approach and give their take on how companies are likely to approach hybrid working during the months ahead.
There is a lot to chew on. Some early ideas, like the hub and spoke model, are falling away. It's clear occupiers still want a centralised base and coworking operators will fill the gaps in the suburbs. The role of those centralised locations is changing and our panel suggests they will in future be places more focussed on personal growth and development. Listen here, or wherever you get your podcasts.
Crypto
There is trouble in the land of bored apes. The average selling price of an NFT has dropped more than 48% since a November peak to around $2,500 over the past two weeks, according to data from the website NonFungible cited by today's FT.
Some of this is to be expected. There is a clamour underway for highly liquid, safe haven assets, and in these conditions the dollar trumps pictures of penguins stored on the blockchain. There are other issues that risk causing a more long term drag on the nascent market, however, as we outline in The Wealth Report 2022.
In November last year, a Twitterbot reported the biggest ever sale of a CryptoPunk NFT, which had just transacted at US$532 million. On closer inspection, it was revealed that the mysterious buyer actually purchased the NFT from themselves. While the purpose was not exactly clear, this is precisely the kind of unruly behaviour sceptics believe will be the end of this new collecting category.
Total sales of NFTs hit $25 billion last year and more than one in ten high-net-worth individuals we surveyed had invested over the course of the year.
In other news...
Pensioners and second home owners will benefit from a reduced social charges rate for rental income, capital gains and investment income. Kate Everett-Allen has more.