Macro Briefing: 6 September 2022

* Russia will not resume gas flows to Europe until “collective West” lifts sanctions
* OPEC+ announces small cut in oil production
* Liz Truss is UK’s new prime minister, replacing Boris Johnson
* Russia sees risk of dire economic outlook via private internal report to gov’t
* Eurozone economic activity falls for second month due to weaker demand
* China announces another cut in forex reserve ratio to support the yuan
* CVS Health will buy in-home health-care company Signify Health for $8 billion
* Japanese yen falls to 24-year low vs. US dollar:

The Federal Reserve says recent rate hikes have lifted Fed funds rate to 2.5% neutral level, but analysts disagree. Estimates of neutral vary widely, Bloomberg reports: Just 39% of economists surveyed in August agree with the Fed’s 2.5% estimate while the rest advise that neutral could range from 2% to 3.75%.

Risk of junk-loan defaults is rising. Defaults on so-called leveraged loans rose to the highest monthly total since October 2020, according to data from Fitch Ratings. Although this represents a fraction of the loan market, which is valued at $1.5 trillion, analysts predict more defaults are coming, reports The Wall Street Journal.

Prices for industrial metals stumble as economic activity weakens. “This is all about recession and recession fear,” says Clive Burstow, head of natural resources at Barings. “The fear is we are in an energy crisis driving us to a recession.