Stock markets are wary of Fed rate hikes

A trader on Wall Street. / reuters

The Ibex-35 yields 1% and loses 7,800 points, with the return on bonds soaring again

Clara Dawn


The European stock markets cautiously pick up the baton from Wall Street, which closed lower on Wednesday after confirming the more aggressive tone of the monetary policy of the Federal Reserve (Fed), which decided on a new rise in interest rates for another 75 basis points, the third in a row at this level.

After yesterday's practically flat close, the Ibex-35 lost 1.2% and lost 7,800 points, with practically all values ​​in red, although the falls 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 digest the message that Fed Chairman Jerome Powell reiterated yesterday about the institution's forecasts. In short: the control of inflation inevitably involves damaging the economy. And it is that beyond the rise in rates undertaken, the true 'hawk' message from the Fed was reflected in the updating of its economic projections, worsening growth and labor market forecasts and making it clear that they do not expect inflation to settles in the 'target' of 2% until 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 to keep them somewhat above this level (at 4.6%) until 2023. «The jump compared to the June projection it is considerable: 100 basis points more. Therefore, the future policy seems more aggressive than before”, indicate the DWS experts.

This outlook keeps US bond yields higher (which moves inversely 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 interest on the 2-year bond continues to run wild, easily exceeding 4%. It is the first time it has happened since the end of 2007, at the very beginning of the previous global financial crisis.

This situation has caused the so-called inversion of the curve, as it is known when the yield of 2-year securities exceeds that of 10-year bonds, which implies a signal to the market of an economic slowdown. "The tone of the meeting was once again hawkish and the debt curves accentuated their negative slope, which is historically associated with a recession in the next 12 to 18 months," explains Carlos del Campo, a member of the investment department of the manager Diaphanum.

"The reaction of the stock markets is negative given the risk that the Fed overreacts while the euro depreciated again, moving away from parity levels and making it difficult to ease inflation in the EMU," he adds. And it is true. The Fed's decision could force the European Central Bank (ECB) to move more forcefully than expected, with the euro continuing to lose ground against the strength of the dollar. After learning of the rate hike in the US, the cross between the two currencies lost parity again, remaining at 0.98 dollars.

Investors are also not forgetting the geopolitical tension that Vladimir Putin has re-awakened in his conflict with Ukraine, although its reflection on the commodity market remains, for the time being, contained. The price of a barrel of Brent oil, a reference in Europe, limits its rise above 90 dollars, while the American West Texas is trading at 83.5 dollars.