Important week in the markets awaiting the decisions adopted by the governing council of the European Central Bank (ECB), which meets next Thursday in Frankfurt. Analysts are now leaning towards a rise of another 75 points (0.75%) in interest rates to place the official price of money at 2%, although they do not rule out that it is finally decided to limit the movement to 50 points. But the latter seems unlikely with inflation at 9.9% in September in the eurozone and with a Federal Reserve that in the United States has put the direct in the normalization of monetary policy and there has already raised rates to the fork between 3% and 3.25%. These are the four keys of the week in the markets:
The increase in the price of money is a reality even before it is official. The market advances it and, for that, there is nothing like observing the daily 12-month Euribor. The interest rate at which banks lend to each other has risen in ten of the last twelve trading days, from October 6 to 21, last Friday. That day, the most used indicator to calculate the monthly installments of variable mortgages and many other business loans rose to 2.778%. It is, therefore, well above the official price of money currently in force and the one that it will predictably reach on Thursday, anticipating future movements by the ECB.
The stock markets, in a clear downward trend, are looking for their direction after experiencing a very pronounced decline since last summer. In the case of the Ibex, the decline has been around 1,000 points, with strong fluctuations in the last month. Last week, the Spanish selective moved between 7,500 and 7,700 points. In this, already heading towards the monthly closing -although October 31 is next Monday-, greater volatility is assumed while waiting for the ECB meeting and, above all, for the message transmitted by Christine Lagarde, its president, in the press conference on Thursday. Investors will also be keeping an eye on macro data and the earnings season on Wall Street.
The tension in the debt market has been constant since the beginning of the year (and before). The rise in rates has caused the sale of sovereign and corporate bonds, which has triggered their profitability in relation to the levels at the beginning of 2022. This affects all states, including Germany, whose ten-year debt currently yields a 2.4%, very far from the negative terrain in which it was a few months ago. Spain keeps the risk premium under control, with the invaluable help of the ECB, and its ten-year bond is below 3.6%. In the eurozone, the biggest concern is Italy, the third largest economy in the euro, although the situation seems under control at the moment without the latest political events having altered the spirits of investors too much.
After successive denials by the ECB bankers, the arrival of a recession in the eurozone is no longer in dispute. Last week, Luis de Guindos, his vice president, said he expected a technical recession - two consecutive quarters of GDP contraction - but that he hoped it would not be excessively severe. The slowdown in the economy is already a fact in Germany, the engine of the euro. And the rate hikes that have already been completed and those that are yet to come will accentuate the drop in consumption and investment. Until inflation expectations moderate significantly, the ECB will be tied down. In addition, the pressure from the Fed with its aggressiveness in withdrawing stimuli forces the ECB to follow in its wake to prevent the devaluation of the euro from continuing to cause price increases.
