OECD warns global economy will slow down but expects it to avoid stagflation

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There was no shortage of reasons for stocks to fall on Tuesday, but they didn’t. Target TGT, -0.50% cut its profit outlook, Union Pacific UNP, -1.98% warned on margins, Australia made a bigger-than-expected rate hike and German factory orders slumped.

Another piece of bad news on Tuesday was the World Bank cutting its global growth forecast, down to 2.9%. The Organization for Economic Cooperation and Development on Wednesday just cut its global growth outlook for this year to 3%, from a previous forecast of 4.5% growth.

OECD

But what’s different than the World Bank, as well as comments made by Bridgewater hedge-fund legend Ray Dalio in an interview, is the OECD’s view that stagflation probably isn’t what is in store. (Dalio told the Australian Financial Review that central banks will start cutting interest rates in two years, after the pain from tightening.)

The OECD said there are key differences now than in the 1970s.

  • Advanced economies are far less energy intensive — in the U.S., that reduces the impact of an oil shock by half. Even globally, given that more growth is coming from less energy-efficient emerging markets, oil and energy intensity has declined.
  • Central banks now are largely independent, and have explicit goals on price stability and inflation targets. The understanding of maintaining well-anchored inflation expectations is far stronger now.
  • Advanced economies are now more flexible, so there’s less of a chance that oil price shocks or other supply shocks will result in a wage-price spiral. That’s as the coverage of collective bargaining agreements has declined, automatic wage indexation mechanisms have been removed, and union membership has declined.
  • Finally, there’s higher savings, accumulated during the pandemic, that can be used to offset income shortfalls.
The buzz

Novavax NVAX, +2.86% shares surged 21% after an advisory committee to the U.S. Food and Drug Administration recommended its COVID-19 vaccine.

Credit Suisse CS, -0.29% fell 6% in Zurich after warning of another loss due to volatile markets, weak customer flows and debt reduction by clients.

Western Digital WDC, +0.68% reached a settlement with activist investor Elliott Management, which calls for the company to evaluate a possible breakup.

Alibaba BABA, +4.09% and other Chinese internet companies climbed after the regulator there approved a number of video-game titles in what was interpreted as a sign of easing regulatory pressure.

Scotts-Miracle-Gro SMG, -9.97% issued a profit warning, hurt by weaker-than-expected orders from retail partners.

The markets

The see saw continues, as U.S. stock futures ES00, -0.62% NQ00, -0.52% pointed lower after a 1% gain for the S&P 500 SPX, -0.51% on Tuesday. Oil futures CL.1, +0.69% held over $120 per barrel, and the yield on the 10-year Treasury TMUBMUSD10Y, 3.016% was just over 3%.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

Ticker Security name
GME, -4.22% GameStop
TSLA, +2.10% Tesla
AMC, +1.61% AMC Entertainment
NIO, +2.52% Nio
NVAX, +2.86% Novavax
AMZN, +0.22% Amazon.com
BABA, +4.09% Alibaba
AAPL, +0.37% Apple
MULN, +1.12% Mullen Automotive
AERC, -14.17% Aeroclean Technologies
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This article was originally published by Marketwatch.com. Read the original article here.

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