A new setback for world stock markets, which lost what was recovered in Wednesday’s session after the Fed’s decision and the ECB’s emergency meeting, given investors’ fear of a recession. The Ibex, the index that has best withstood the selling pressure, has dropped 1.18% to 8,078.10 points. Wall Street, in the middle of the session, suffers another crash that has exceeded 4% at times in the case of Nasdaq.
Falls return to stock markets after yesterday’s lull. The downward wave suffered for a week prevented the acceleration in the pace of rate hikes by the Federal Reserve from taking its toll on the financial markets yesterday. Since the new ceiling in US inflation was known last Friday, 8.6% in May, higher than expected, investors have raised the expected magnitude of the rise in interest rates from 50 to 75 basis points.
At times, even, some firm raised the possibility that the Fed put on the table increases of up to 100 basic points to nip inflationary tensions in the bud. Finally, the Fed adjusted to the script foreseen by most analysts, and approved its biggest rate hike since 1994, of 0.75 basic points, triple the usual rate. Based on the upcoming inflation data, analysts open the door to even another 75 basis point rally. The upward adjustment is still far from peaking, and as Pimco warns, “the aggressive tightening of monetary policy is likely to continue during the next few meetings”, even with further hikes of 75 basis points, according to Julius Baer.
The leading role of the central banks, twice yesterday due to the emergency meeting of the European Central Bank, continues in today’s session. All eyes were on the Bank of England. But for the second day the European central banks have surprised the market. The Swiss National Bank has raised rates for the first time in seven years, and has also done so with a rise of 50 basis points, from -0.75% to -0.25%. His move, completely unexpected by analysts, highlights the determination of central banks to fight inflation, despite the risk it may cause on growth.
The wave of rate hikes continues with the Bank of England. This noon, at the end of its meeting, it has continued its series of upward adjustments in interest rates, which began in December, before the rest of the main central banks. The Bank of England has approved raising rates by 25 basis points, from 1% to 1.25%, although three of its nine advisers have voted in favor of a May tightening of 50 basis points. The British central bank is so far one of the most transparent when it comes to forecasting GDP levels close to recession.
The fear of stagflation or recession is still latent in the markets. The sharp upward adjustment in financing conditions further complicates forecasts of the anticipated economic slowdown. Economic doubts and the movements that had preceded the Fed in previous sessions have prevented new highs in the yield of US public debt. The US bond interest is above 3.30%.
In Europe, yesterday’s emergency intervention by the ECB notably cooled interest on peripheral debt thanks to promised support for Italian and Spanish bonds. But today’s session turns yields higher again. The Bloomberg agency has published that in order to reinvest its balances in peripheral debt, the ECB will have to sell other assets. Divestments again reach European fixed income. The interest of the ten-year Spanish bond reaches 2.90%, and the German bund rises to 1.70%.
To the relief of the markets, one of the main sources of inflation, oil, has shown greater containment in recent days. The recent bullish trickle has given way to further stabilization below $120. Today, after the forceful increase in rates by the Fed, the barrel of Brent falls back to 117 dollars. In the US, the West Texas-type barrel falls to 115 dollars.
The price of oil yesterday reacted downwards to the Fed’s rate hikes, in anticipation of a greater risk of recession, and this fear is gaining strength in today’s session in the markets, and especially on Wall Street. The declines have come to exceed 4% on the Nasdaq, more than erasing the bullish references left yesterday, after the Fed, the positive closing of Wall Street. The Dow Jones leaves more than 2% and loses 30,000 points. The very aggressive pace of interest rate hikes in the US reinforces the prospects of a notable slowdown in growth, they are the shadow of the underlying recession. Today’s session will include an important macro data to gauge the health of the labor market, one of the most closely watched by the Fed when it comes to adjusting its monetary policy.
Europe has been infected by the falls on Wall Street, and the Spanish Stock Market has corrected the rebound of 1.34% achieved in yesterday’s session, before the news from the Fed was known. The ECB was the trigger for the increases . Today, on the other hand, the improvement in the interests of the peripheral debt is slowing down, and the absence of large references favors the correction in the Ibex. The Spanish selective index has lost another 1.18% to 8,078.10 points, although once again it has shown more firmness than the rest of the European indices.
Cyclical stocks have been affected by doubts about the magnitude of the economic slowdown. The avalanche of rate hikes deteriorates growth prospects, and industrial stocks such as ArcelorMittal (-5.32%) and Acerinox (-4.55%) have acted as a brake on the Ibex. Another cyclical sector such as banking has also closed mostly down, with falls for Sabadell (-2.45%), Santander (-2.04%) and BBVA (-2.10%). CaixaBank, against the current, has revalued by 0.64%.
Companies with a defensive profile such as Red Eléctrica (1.89%), Naturgy (1.69%) and Enagás (2.06%) are the three that have presented the strongest behavior on the Ibex.
A heavyweight like Inditex has cut 1.95%. The sharp rises in interest rates in the midst of an inflationary environment and with a slowdown in sight puts the companies most linked to consumption once again in the focus of investors given the forecast of a loss of purchasing power.
The rest of the European stock markets have succumbed to a greater extent to the downward pressure activated on Wall Street. The surprise rate hike by the Swiss National Bank and the further increase by the Bank of England shift investors’ focus of concern from inflation to growth. The German Dax has lost 3.31%; the French Cac, 2.39%; the Italian Mib, 3.32% and the British Ftse, 3.14%.
Corporate benchmarks haven’t exactly helped maintain yesterday’s surge of confidence in European equities either. A technology giant like Prosus has fallen 5.6% on the Amsterdam Stock Exchange after recognizing a decline in its business excluding extraordinary items. In the London Stock Exchange the falls have exceeded 32% in Asos. The profit warning launched by the British online retailer has plunged its shares, and has taken its toll on the entire textile sector.
The turmoil in equities is extensible to the foreign exchange market. The whirlwind of news from central banks multiplies portfolio adjustments. The dollar and the Swiss franc came out stronger in the early hours, closer to parity against the euro. Subsequently, the community currency has recovered ground and exceeds 1.05 dollars again. The British pound takes flight after touching new lows in two years, on the verge of 1.20 dollars, after the meeting of the Bank of England and rises above 1.23 dollars.
The fall of the dollar has helped a rebound in the price of gold. The precious metal is close to $1,850 an ounce again. The increases finally return to the cryptocurrency market, which thus cuts the collapse suffered in the days before the Fed. Bitcoin threatens with a timid recovery, and extends its cushion above the $20,000 barrier, just one day later to stay one step away from losing this support, by setting lows of $20,100.
