The Ibex-35 opens aimlessly above 8,100 points as investors also wait for the euro-dollar crossing
European stock markets are aimlessly embarking on another day with investors trying to digest the central bank’s conspiracy to fight inflation and, in Europe’s case, avoid a future sovereign debt crisis.
The Ibex-35 lost 0.16% to 8,1662 points after the emergency meeting of the European Central Bank (ECB), which ended yesterday with a brief statement announcing that it will design a new tool to deal with the unwarranted rise in risk premiums. in peripheral countries.
The agency’s vice president, Luis de Guindos, said today that markets should have no doubts about the institution’s determination to tackle the fragmentation of the cost of financing the eurozone’s sovereign debt. The Spanish economist assures that the fragmentation, or lack of transmission, of monetary policy has always been a concern of the Governing Council of the ECB.
Everything points to a new decaffeinated QE, but it will be necessary to see the details to understand whether the organization has the capacity – not only in volume, but also legally – to execute such a plan.
Link Securities analysts say that, with inflation skyrocketing, “creating an ‘ad hoc’ debt-purchase program, meaning that the money supply in the eurozone will increase, is difficult to defend.”
In addition, they believe that the countries in the north of the region will not allow a program that does not involve conditionality. In other words, to attend, the countries must commit to the deadline and take the form to reduce their imbalances, something their political leaders do not believe they are willing to accept given the high political costs involved. entails.”
Despite the initial gains, caution is still very much in evidence, especially as Wall Street futures are in the red after a day of gains in response to the Fed’s decision to hike rates by 75 basis points. The biggest increase since 1994, when Alan Greenspan was in command of the US central bank.
Investors are also closely following developments in the debt markets. The ECB’s commitment to prevent borrowing costs from skyrocketing in the most indebted countries, such as Spain or Italy, has allowed for some easing of the tension experienced on government bonds today.
For example, the yield on the Spanish 10-year bond remains below 3%, at 2.86%, while the yield on the bund falls to 1.61%. However, both references are at a high level compared to just a few months ago, with the Spanish risk premium at 122 basis points, out of 137 it traded before the ECB meeting.
In addition to equities and fixed income, the evolution of the various monetary policies leaves behind a clear key player that investors should pay attention to: the cross between the euro and the dollar. With the ECB’s rate hike, the dollar has strengthened in recent months, with a more marked rebound in recent weeks, bringing the cross between the two currencies at $1,038.
Some voices are already pointing to the inevitable arrival of parity between the two currencies, something that could be welcomed with optimism in the near term given the benefits a ‘cheap’ currency can bring to exports. But beware, a weak euro in the medium term could pose huge problems for the region’s economy. Especially in the energy bill, because we must not forget that Europe imports a large part of the oil it uses. And this is negotiated and paid in dollars.
Turning to the macroeconomic forecasts released yesterday by the ECB, De Guindos reiterates that the base case indicates there will be no recession, although the eurozone will show low growth, although he acknowledges that in more extreme situations, including a severe energy supply, growth is expected to turn negative in 2023.
He also recalled that the ECB’s projections indicate that the currently very high inflation “will only begin to gradually decrease towards the end of this year”, and will remain above the 2% target throughout the forecast horizon. “Inflation is more persistent and widespread than we thought a few months ago, but will continue to decline in 2023 and 2024,” he said.
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.
