How long does market data take for events that wait several weeks? The European Central Bank decided last week to raise interest rates by a quarter point to 4.50%, and stock markets reacted with euphoria that same Thursday. Christine Lagarde’s statements about the end of the rise in the price of money encouraged both bonds and stocks, but the joy didn’t last long and on Friday there was a strange session full of doubts. The IBEX 35 struggled to perform positively and, furthermore, Wall Street ended the round with some declines in its indices. The interest rate hike in the Eurozone may already be over and next Wednesday we will see what happens with the US Federal Reserve’s (Fed) decision. But a certain conviction that The bad has already happened in this area, raising new questions about the progress of economies.
In the case of Europe, the fundamental question is whether monetary medicine is overdone in slowing economies, since the effects of the drug only become apparent after several quarters. It’s also curious how This Wednesday’s Fed meeting is not attracting excessive interest. It is already clear to the markets that the rate hike rally (they have never grown so fast) is over. And now this? This new week sees meetings of the Bank of England, Japan and Brazil. The pound sterling is only expected to rise further.
At the end of a process that has kept the investment community on tenterhooks for the past year and a half, there is a certain distrust and lack of enthusiasm. And this is reflected in the volatility of both the stock and bond markets, with the prices of these assets constantly fluctuating, as if the conviction of a minimal trend could not be maintained even in a single day. The only thing more solid is the dollar’s strength against the euro, which is up 4% in just over a month. This misguided operation – always within short fluctuation bands – leads most pessimists to expect a sharp price correction. For the first time, stock markets experienced a sharp increase in the price of money without recording a decline. And the most obvious explanation for this novel situation is governments’ support of fiscal policies to combat the evils of the Covid-19 pandemic and later the war in Ukraine. Impulses that need to be put on the table now to assess the direction of the markets and their actual strength.
Sean Shepley, senior economist at Allianz Global Investors, believes we will have to wait until the end of the week before the indices are released to find out the key data PMI in the United States, Eurozone, Japan and the United Kingdom. In addition, there are signs in some countries that the manufacturing sector is beginning to stabilize, which would contribute to the expected soft landing. On the other hand, the services sector in the Eurozone and the UK has weakened so much that if the PMI falls again, the risk of a decline in economic activity would increase. In the US, last month’s survey for the services sector was very mixed, meaning the data will make a particularly important contribution to growth expectations. They are also closely followed OECD economic forecasts for the Eurozone.
Economic development therefore testifies to the importance that interest rates have had compared to interest rates. And undoubtedly, a bad score is the collapse in the creditworthiness of companies and families, which will affect the pace of growth. The rise in credit prices that is so quickly reflected in family economies will also show its less friendly face in businesses in the coming months as debt renegotiations take place, many at a fixed interest rate in an era of free money.
Next week’s highlights are coming up in Spain Home sales and the evolution of their prices will be announced on Wednesday. Second quarter GDP will be released at the end of the week. Also the Ministry of Finance will conduct 3-, 5- and 10-year bond auctions.