The markets have very thin skin. A phrase by Christine Lagarde spoken on Wednesday at the Davos Economic Forum has turned the stock markets red. This is how sensitive investors are, who have been trusting for weeks in a drop in the price of money with the blossoming of spring.
The president of the European Central Bank (ECB) has assured that it is likely that the monetary institution she directs will reach a consensus to lower interest rates, but only in the summer. “I would say it's also probable…” she said when asked.
“I know that some people argue that maybe we are going too far, maybe we are taking risks,” Lagarde said. “But the biggest risk would be letting inflation run wild again and having to launch rate increases again,” explained the institution's chief economist, Philip Lane, even more explicit. “Cutting interest rates too soon could threaten Europe's progress in fighting the inflation that has devastated the economy,” he told the Bloomberg agency.
Along the same lines, “investor bets on an ECB interest rate cut are excessive and possibly counterproductive, since they could actually stop monetary easing,” the head of the Dutch central bank told CNBC. , Klaas Knot.
This exchange of statements (or rather a chorus) has meant a cold shower for the stock markets, which in the latter part of 2023 dreamed of a relaxation in the price of money at the end of the first quarter. A time horizon that now seems to be receding.
Indeed, investors speculated that the ECB would not dare to cause a recession in the eurozone, as current inflation was more a problem of supply restriction than excess demand. However, everything indicates that Frankfurt will hold firm before releasing the monetary brake.
Jesús Sánchez Quiñones, general director of Renta4Banco, in a column that will be published this week in the Dinero supplement, recognizes that “the market is excessively optimistic with the amount of interest rate reductions and with the timing of said reductions.” writes. “In the case of Europe, it seems too optimistic to think of six interest rate cuts this year. Inflation will hardly allow it. Proof of this is the current disruption in supply chains due to the situation in the Red Sea,” he warns.
The same downward trend is experienced on Wall Street. Maybe the Fed will let its guard down before the ECB, but it won't be too soon either. Because markets are now forecasting 150 basis points of cuts in the United States this year, up from 166 basis points last week. The probability of a rate cut in March, once considered certain, is now just over 50%.
The Ibex 35 ended Wednesday with a significant drop of 1.26%, which caused it to lose the level of 9,900 points. The US stock market has also opened its sessions with slight losses and the euro is trading lower.
To end the day, the World Trade Organization (WTO) has admitted to being “less optimistic” about world trade this year, according to its secretary general, Ngozi Okonjo-Iweala, citing in particular “worsening geopolitical tensions, disruptions "What we are seeing in the Red Sea, in the Suez Canal and the Panama Canal."
