Voices of a recession in the coming year are getting louder. With the currently high inflation across the world, increasing interest rates, and drained reserves from the Covid-19 pandemic, companies are facing a bumpy road ahead. While inflation is declining to some degree, the crisis is far from over. In the US, inflation declined to 7.7%. This is likely a consequence of the continued and steep interest rate hikes from the Fed throughout the year that start paying off. With the most recent inflation data, the Fed hinted at lower hikes in the short term. In Europe, inflation is still higher, with 10% for the European Union and 9.6% for the UK. Nonetheless, it decreased in both instances compared to the previous month. Another interesting development is the price cap by the EU on Russian oil. It should mitigate Russia’s capabilities to finance the war with oil sales. Russia already stated that it will not oblige to the price cap. Over the past six months, oil substantially lost value. While it was trading well above $120 per barrel during the year, over the past six months it dropped. WTI crude oil is currently trading at $73 per barrel and has lost almost $10 per barrel since the official launch of the price cap on Russian oil. Figure 1 shows this development over the past six months. It will be interesting to monitor this development in terms of oil prices in general and whether the cap has the desired impact to stop Russian war financing. Since the end of Q3 2022, equities managed to rebound quite strongly and offset a proportion of the losses of the first three quarters this year. In contrast to the poor Q1-Q3 2022, the private equity industry was relatively stable over this time period, albeit with some losses and less activity. Nonetheless, the industry’s number of deals and deal value is still exceeding pre-pandemic levels, which is remarkable. Figure 2 provides further insights into global buyout deals, which make up most of the capital in the industry. Cryptocurrencies have not recovered from the shocking collapse of FTX. Since the collapse, Bitcoin is steadily moving between the $16k and $18k mark. Ethereum similarly moves between a range of $1.1k and $1.3k. Market participants are divided on their current opinions on the cryptocurrency market. With a looming recession ahead, cryptocurrencies are likely to face further drawdowns as highly risk-on assets. However, most people and institutions likely sold their over-allocation during the drawdown of 2022, and it remains to be seen how much more will be sold. Given the continued drawdown, most current holders are less likely to sell their positions due to being convicted of the underlying advances the technology will bring. Additionally, cryptocurrencies have done well in crises. Institutional investors also view the space with significantly different opinions. For example, Goldman Sachs plans to buy crypto on a large scale, while BlackRock is hesitant and expects many more collapses ahead.
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