The Ibex-35 returns 1% and loses 7,800 points, while bond yields rise again
European stocks are cautiously taking over from Wall Street, which closed lower on Wednesday after confirming the more aggressive tone of the Federal Reserve’s (Fed) monetary policy, which decided to hike rates by another 75 basis points, the third in a row. at this level.
After yesterday’s nearly flat close, the Ibex-35 lost 1.2% and lost 7,800 points, with virtually all values in the red, although the declines were led by IAG (-3.07%), Amadeus (-2.35 %), Grifols (-2.27%), Cellnex Telecom (-2.27%), Indra (-1.75%), Inditex (-1.63%) and Ferrovial (-1.58%).
Investors are trying to process the message Fed Chair Jerome Powell reiterated yesterday about the institution’s forecasts. In short, controlling inflation inevitably damages the economy. And it is that aside from the implemented rate hike, the Fed’s real “hawk” message has been reflected in the update of its economic projections, deteriorating growth and labor market forecasts and making it clear that they do not expect inflation to pick up in the coming years. stabilize. ‘target’ from 2% to 2025.
In this scenario, the Fed is now showing its willingness to raise interest rates to 4.4% for the remainder of the year and keep them slightly above this level (at 4.6%). “The jump from the June projection is significant: 100 basis points more. That is why the future policy seems to be more aggressive than before,” the experts from DWS indicate.
This outlook keeps US bond yields higher (which is inversely proportional to price). That of the 10-year bond stands at 3.55%, a maximum not seen since 2011. But the most abrupt movement is observed in the short term. The yield on the 2-year bond continues to run wild, easily above 4%. It is the first time since late 2007, at the very beginning of the previous global financial crisis.
This situation has caused the so-called inversion of the curve, as is known when the yield of 2-year securities is higher than that of 10-year bonds, signaling to the market an economic slowdown. “The tone of the meeting was again hawkish and debt curves accentuated their negative slope, which has historically been associated with a recession in the next 12 to 18 months,” explains Carlos del Campo, a member of the investment division of manager Diaphanum.
“The stock market response has been negative given the risk of the Fed overreacting as the euro depreciates again, pushing out of parity levels and making it difficult to reduce inflation in the EMU,” he added. And it is true. The Fed’s decision could force the European Central Bank (ECB) to act more vigorously than expected, with the euro continuing to lose ground against the strength of the dollar. After learning of the interest rate hike in the US, the cross between the two currencies lost parity again, remaining at $0.98.
Investors are also not forgetting the geopolitical tension that Vladimir Putin has reawakened in his conflict with Ukraine, although his reflection on the commodities market remains limited for the time being. The price of a barrel of Brent oil, a reference in Europe, limits the increase to above $90, while West Texas is trading at $83.5.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
