The European Commission seems to be running late and did not update yesterday the growth prospects for the economy that the market has been discounting for days. The reality will undoubtedly be worse than the 4% announced for 2022 due to problems such as the one that has just exploded in Italy, where a new government crisis comes at the worst time for the eurozone, at the gates of the first rate hike of interest in eleven years and just before the European Central Bank (ECB) announces how it will deal with the financing problems of the periphery of the euro. Precisely, Italy's risk premium soared 18 points yesterday, to 227, approaching the level that led to the emergency meeting of the ECB last June.
The eurozone returns, therefore, to the exit box and to massive sales in everything that smacks of risk. The Milan stock market dropped 3.4% yesterday. The rest of the stock markets of the Old Continent also fell, with the Ibex and the Frankfurt stock market losing almost 2%. The Spanish stock market index is at 7,800 points, very close to the level of last February, when Russia began the aggression against Ukraine.
That level is beginning to be history in many market assets. For example, in oil. Yesterday, the Brent reached 96 dollars a barrel after a drop of about 4% due not to the recovery, but to the growing weakness in demand. The slowdown is already palpable in Europe and the United States.
Although now what rules is the fight to contain prices. After days of speculation, Christopher Waller, a member of the Federal Reserve board of governors, said yesterday that he would be willing to support a 100-point rise in interest rates later this month – from 1.75% to 2. 75%– due to the strong advance of inflation. The last time the Fed made such an aggressive move was in 1981. Citi gives this possibility as very likely. This option continues to punish the euro, which depreciates more every day. Yesterday it was trading at $0.9952, already below parity.
The general uncertainty increasingly affects the day to day of companies. Investment projects are frozen. And, sooner rather than later, new hires will disappear and layoffs will intensify. Two large US banks – JP Morgan and Morgan Stanley – yesterday opened the quarterly earnings season in the United States with cuts in their profits. Wall Street has long anticipated it. Now, the correction reaches the profit and loss accounts of the companies.
