They raised too much and too fast i interest rates? This is the doubt that is assailing traders and financial operators and is the reason why the international stock indices have immediately engaged the march towards a rise that has brought them a little far from the point of no return. Actually I would like to add if the problem is perhaps not that of having kept them low for too much and for too long but in these cases I am nobody and therefore it is better to keep quiet. It seems to me, and then I conclude, that what has happened in the last few years is crazy stuff. And so when you pull the elastic too far to one side you have to be careful that it bounces in your face.
We need to clarify that when a central bank raises interest rates there are natural delays in the transmission of monetary policy. In other words, it is not like a video game that the central banker presses the raise rates button and inflation immediately drops as if he had shot a zombie. The delays are being discussed.
The International Monetary Fund wrote in its latest monthly bulletin on the global economic outlook that changes in interest rates have their greatest effect on growth in about a year and on inflation in three to four years. When former Federal Reserve Chairman Paul Volcker took office in the summer of 1979 and quickly pushed interest rates to around 20%, he caused a recession almost immediate, but it took about three years for inflation to fall to manageable levels.
The effects of the post Covid
A 2013 review by Tomas Havranek and Marek Rusnak of the Czech central bank of dozens of academic studies concluded that in advanced economies the maximum impact on inflation a rate hike takes two to four years.
This means that the money supply put into circulation in the post Covid continues to produce its effects while the increases in interest rates made in recent months are still far from combining anything.
If we look at the current macro facts we see that in reality, after a small contraction in the first half of the year, the US economy grew by 3% in the third quarter and Europe follows suit with unemployment that is at an all-time low and with energy costs that are soar to the stars.
In the graph below, the US GDP forecasts for the third quarter are steadily at 3%:
And the US unemployment rate (dark blue line) which has been hovering at its lowest since time immemorial now:
But that the situation is exceptional on both sides of the Atlantic is shown by this graph:
Central bankers now find themselves in the difficult situation of deciding whether to continue raising interest rates and run the risk of seeing economies collapse in the coming years as the cost of money becomes impracticable or to let inflation survive in the shadow of their own. indecision without crushing her head right away.
But there are a thousand other related problems: the first is that what the central banks do matters, but it also counts what the markets think central banks do and therefore not raising rates could soon be a pretext for a fall in the credibility of banks. central banks in the fight against inflation. Furthermore, the link between the action of a central bank and the results of the fight against inflation is not functional, so it could be that this time the macro results of an increase in rates could simply be “different” from what is expected.
All these doubts mean that many are expecting a 0.75 increase at the meeting Powered November and only a 0.5 increase at the December meeting.
The SP500 is struggling to have the worst investor year title from 2007 to the present.
Yet the season of business profits the third quarter showed 20% of companies reporting quarterly results and 72% of them beating forecasts against a five-year average of 77%.
On a technical level, the general picture always sees us above the supports that have held the market for several months now.
With some nice news: the Sequential (an end-of-cycle indicator from Thomas Demark) that was piling up on the FTSE All Share Weekly is coming to fruition and pushing up the bars of our national index. We have 12 of the 13 prescribed bearish bars before we see the trend reversal. Unfortunately we do not have other signals of the same type on the other international exchanges and therefore it is a lot to take with a grain of salt.
What’s going on this week? Wall Street closed higher on Friday and I think next week should be focused more on the upside than on the downside, let’s say that badly we could have decent congestion with upward weekends…
There are only a few Italian stocks set upwards if you want to know them look for free our Independent Trend Index ranking.
Below are 3 interesting Italian shares, one of which is Sciuker Frames which has drawn a symmetrical triangle with a goal above the current prices. And we pointed it out in last week’s editorial in unsuspecting times.
Interpump is always wonderful …
