©Reuters.
By Laura Sanchez
Investing.com – , and the other European lists are trying to recover after a week of very high volatility due to messages launched by central banks on the path of interest rates.
However, according to experts there are ‘fine print’ speeches that are worth reading because of the meanings they can hide.
“Pragmatism prevails. The last two weeks of the year would probably have represented a rebound, but Lagarde took steps last Thursday to eliminate this possibility. There are two important things that central banks, and in particular the ECB, do not tell us”, analysts say bankinter (BMI:).
According to these experts, they are:
- They cannot implement the rate hikes that would be necessary to bring inflation back to +2% in the short term, because this would lead to a severe recession, through a deterioration in employment, and they are not willing to bear this cost;
- They cannot allow stock markets to rise and bonds to compress their IRRs as they pursue tight monetary policies;
For this reason the aggressive dialectic that has been used recently aims as much to fight inflation as to curb the stock and bond markets”. They are trying to influence as much as possible with their messages to slow down a market which, if it recovers quickly, it would expose them and dilute the effects of their tougher monetary policies,” they add to Bankinter.
“The ‘bright scenario’ that optimistic investors have priced in over the past couple of months, and which has led to a strong rally in Western bond and equity markets over the past couple of months, is one of a soft landing for the economy, with l “inflation rapidly turning downwards and central banks ending their process of raising rates and even starting to reverse part of them. A hope that however has now lost momentum, falling into the background”, underline from Link Securities.
“Following the steadfastness in the fight against inflation by the monetary policy committees of the European and US central banks last week, investors’ biggest fear is that the major developed economies will plunge into a deeper recession than previously forecast,” they add. LS extension.
“There is also talk again of a potential ‘mistake’ by central banks which, according to this version, would lead their process of withdrawing monetary stimulus to excessively restrictive levels, causing a hard landing for these economies. In our opinion, the central banks have already made the mistake of being too complacent towards high inflation in 2021, months before the outbreak of war in Ukraine, by treating the price increase as a transitory phenomenon.
AND Rent 4 Banco SA (BME:), highlight instead that “In the current environment, our market view remains cautious, especially after the recent rally in equities and bonds, in a highly uncertain environment.”
“Although recent data show some moderation in inflation, it remains at very high levels and the inflation ceiling has yet to be confirmed, especially in Europe. In this regard, we believe that such high inflation will cause rates to continue to rise, with no rate cuts in 2023, in addition to the expected deterioration of the economic cycle and its impact on corporate results yet to be seen.
