The Ibex-35 yields a light 0.12%, but has 9,000 points
Maximum caution on European stock markets, with investors waiting from the sidelines for the first meeting of the year of the European Central Bank (ECB) which, according to analyst consensus, will announce another 50 basis point rate hike this Thursday.
While the market has long discounted this possibility, yesterday’s release of preliminary data for Spain’s CPI – which hit 5.8% in January, beating expectations – raised expectations that the ECB would be much more aggressive at its upcoming meetings. Not so much in the increase in the reference figures, but in his argument.
Against this background, the Ibex-35 ended the first session of the week down 0.12%, maintaining at least 9,000 points (it closed at 9,049.3 points). Merlin, up 1.34%, led the upper end of the table, while Banco Santander was up 0.74%; Phone 0.66%; logistics, 0.57%; and Inditex, 0.56%.
On the contrary, Fluidra led the declines of 2.68%, ahead of Grifols (-2.63%), Acciona (-2.12%), Solaria (-1.98%) and Rovi (-1.76%).
However, the initial market reaction to the Spanish CPI data was seen in fixed income, with government bond yields soaring as soon as the data was released. Specifically, the yield on the Spanish 10-year bond rose by more than 10 basis points to 3.3%.
This environment of central bank interest rate hikes has created a more than optimistic scenario for fixed income managers, looking this year to compensate the most conservative investors, who suffered significant losses in their wallets last year.
Yesterday, the Buy & Hold fund manager joined these voices indicating that such an opportunity has not been seen in the bond market for a long time. Rafael Valera, CEO and manager of the company, recalls that “the change in central bank discourse came when the portfolio of our funds was fully invested and we continue to do so.”
Valera, with more than 30 years of experience in this market, says that “I have never seen such a number of good credit quality issuers offering near double-digit yields on their bonds.” For this reason, according to the company’s semiannual letter, they have taken the opportunity to “gradually gain weight in investment-grade bonds.”
Currently the yield to maturity of the manager’s fixed income portfolio is 9.5%, with an average maturity of 3 and 40% of that in investment grade issues. With positions in a total of 53 issuers, the debt weight of banks such as Cajamar and Ibercaja, old acquaintances of Buy & Hold, has strengthened, as have bonds in the leisure and tourism sector.
Looking ahead to the ECB’s meeting next Thursday, analysts from Federated Hermes Limited indicate that “the ECB’s path is set and interest rates will continue to rise in the coming months.”
A rate hike of 50 basis points is expected at next week’s meeting, and it is unlikely to be the last unless the updated forecasts for March offer radically different prospects for inflation and growth than in December.”
Ultimately, they believe that data developments will determine the duration and extent of ECB tightening. “Since central banks are slow in their movements and the data is a hindsight of the economic situation, there is a risk that the ECB will eventually tighten too much,” they say.
Meanwhile, in the commodities market, a barrel of Brent fell 1.5% to $85.37, while US West Texas is around $78.42.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
