Stock markets seek rebound against inflationary tensions

Inside the Madrid Stock Exchange. / afp

The Ibex-35 tries to recover the 8,800 points pending oil and unemployment data in Spain and the US

Clara Dawn

The European stock markets face a somewhat calmer session, at least until the ADP employment report in the US is known, a prelude to the official data to be published on Friday and which, predictably, will reinforce the Fed's decision to accelerate the withdrawal of stimuli.

At the moment, and pending the opening of Wall Street, the Ibex-35 advanced 0.3% to 8,778 points, in line with the rest of the European stock markets.

Despite the rebound in the session, it is clear that investors remain very aware of market risks. Especially after the latest inflation data in the euro zone, with a new record of 8.1% that could force the European Central Bank (ECB) to be much more aggressive than initially expected.

It seems clear that the main monetary institutions are already betting without any doubt on their work to curb inflation, although the rate hikes imply an obstacle to economic recovery.

This scenario of fear of a slowdown in the rate of growth shakes the debt markets again, where investors repeat the strategy of selling bonds, pushing prices down and, therefore, raising yields that move in the opposite way.

Specifically, the interest on the debt recovers levels of weeks ago, when they were trading in the maximum zone. Although the escalation takes some respite early in the day, the yield on the 10-year German bond is still shot at 1.2%, the highest since 2014 and far from the negative sign it showed just a few months ago.

"High inflation rates, hitherto mostly described as temporary, are becoming a structural phenomenon," says Klaus Kaldemorgen, manager of the DWS. The firm, which has just published its market forecasts, warns that "the weakening of globalization that will cause a drop in productivity and an increase in costs" will also contribute to this factor.

“The macroeconomic consequences of all these events are worrying. Consumer demand will fall due to inflation and companies will also suffer from falling margins and an increase in financing costs, ”warns the expert.

The cost of financing has also risen for US bonds, especially short-term debt, which is more sensitive to possible rises in interest rates.

From the Link Securities analysis department they also recall that the Fed already began the process on Wednesday to reduce its disproportionate balance, which currently exceeds 9 trillion dollars (the so-called quantitative tiening), which in a first phase will consist of not reinvesting of the bonds that the agency has in its portfolio that reach maturity. "This process, together with increases in official interest rates, will undoubtedly lead to a tightening of financial conditions for companies and individuals, which will end up taking its toll on US economic growth."

“The difficulty at this point is to know if the Fed will be smart enough to achieve a soft landing for the US economy and thus avoid its entry into recession. The behavior of these stock markets in the coming months will largely depend on what investors discount," analysts insist.

Investors also remain very aware of the evolution of oil prices, which fell by nearly 2% after Saudi Arabia announced that it could study increasing its production if Russia stops its crude oil exports. The barrel of Brent, a reference in Europe, is trading at 114 dollars, while the American West Texas is about to give up 113 dollars.

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