The US is ready to go to war with China over Taiwan. ECB begins to normalize monetary policy

US President Joe Biden said he was ready to enter into a military conflict with China “in case of an invasion” of Taiwan. In turn, the Chinese Foreign Ministry responded: “Taiwan is an inalienable part of China’s territory. The Taiwan issue is a purely internal affair for China. China has no room for compromise or concession on issues touching on its core interests of sovereignty and territorial integrity. No one should underestimate the firm resolve, staunch will, and strong ability of the Chinese people in defending national sovereignty and territorial integrity”.

Fed spokesman Bostick said yesterday that the US economy has not yet felt the full impact of the war in Ukraine. The upward price pressure on industrial inputs is still to come, and the Fed may well need to raise rates very sharply.

The BlackRock Investment Institute cut its ratings of developed market equities to “neutral” from “overweight,” citing the Fed’s potentially overzealous efforts to curb inflation and signs of an economic slowdown in China.

Germany’s Ifo Business Climate Index rose for the second month in a row, but its current level suggests weakness. German businesses are suffering from the effects of the war in Ukraine, as well as disrupted supply chains from China. Analysts believe that household incomes will decline in the near term, and companies will find it increasingly difficult to cope with the costs associated with higher energy and commodity prices, putting pressure on corporate profits.

The Turkish lira is under pressure again due to rising inflation. Consumer inflation was 61% in the first quarter of the year, with prices rising in all subgroups.

Oil prices declined yesterday and continued to decline at the opening of trading today as fears of a possible US recession and rising COVID-19 cases in China outweighed expectations of limited global supply and increased fuel demand due to the US summer auto season.

Asian markets traded without a single dynamic yesterday. Japan’s Nikkei 225 (JP225) gained 0.98% for the week, Hong Kong’s Hang Seng (HK50) lost 1.19%, while Australian S&P/ASX 200 (AU200) added 0.047% on the day.

In New Zealand, retail sales (excluding price effects) fell by 0.5%. Australia’s manufacturing PMI index declined to 55.3 in May from 55.9 in April. The service sector also saw a decline from 56.1 to 53. Rising prices, as well as supply chain problems, are negatively affecting the country’s manufacturing activity.