The US economy is slowing down. Russia openly blackmails Europe

US GDP fell by 1.5% in the first quarter, worse than expected. Initial jobless claims fell to 210,000 (-8,000 for the week). The US GDP decline amid a strengthening labor market points to pre-recession signs. On the other hand, the decline in GDP is due to the fact that the US spent more on imports than other countries on US exports. This led to a trade deficit, which contributed to the contraction of GDP. US pending home sales fell by 3.9% in April. This is the sixth consecutive month of decline. As mortgage rates rise, analysts predict existing home sales will decline 9% in 2022, and home price growth will drop to 5% by the end of the year.

On Wednesday, the United States brought Russia closer to a historic default by not renewing its license to pay its bondholders, as Washington increased the pressure following Russia’s invasion of Ukraine. The White House said on Thursday that it expects a minimal impact on the US and global economies from the Russian default.

Yesterday, Russian President Putin had a telephone conversation with Italian Prime Minister Mario Draghi in which he resorted to outright blackmail. Putin said that Russia is ready to contribute to overcoming the food crisis if provided sanctions are lifted. Russia is still blocking Ukrainian ports, stealing Ukrainian grain, and thus increasing the risk of a food crisis not only in Europe but also in the world since Russia and Ukraine are key grain exporters.

The EU could still strike a deal on the oil embargo in the coming days or turn to other instruments if no agreement is reached. Hungary remains a stumbling block to a unanimous solution. Budapest is demanding about 750 million euros ($800 million) to upgrade its refineries and expand its pipeline from Croatia so that the country can refuse Russian oil.

Oil prices jumped by 3% on Thursday, hitting a two-week high, as market participants bet on rising consumption ahead of Monday’s Memorial Day holiday, which marks the peak of America’s driving season. Meanwhile, on Thursday, Chinese Premier Li Keqiang issued a pessimistic outlook on the new struggle with Covid, faced by the world’s biggest oil importer. Analysts said the China factor could affect sentiment again in the coming week.

Asian markets traded lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.27%, Hong Kong’s Hang Seng (HK50) lost 0.27%, and Australia’s S&P/ASX 200 (AU200) was down 0.69% by the end of the day.

Australian retailers recorded sales growth for the fourth month in a row, a sign of economic resilience despite rising inflation. Retail sales increased by 0.9% in April to a new record of $33.9 billion ($24.1 billion) and fell just short of economists’ expectations for a 1% increase. On the other hand, an ABS business survey released on Thursday showed that more than a third of all firms in Australia plan to raise prices on their goods or services over the next three months. This points to strong inflationary momentum across the economy and raises questions about the sustainability of household spending growth.