Big Tech USA and global markets
Yesterday, i global markets they scored a modest increasebut with notable disparities at regional and sectoral levels. In Europe, all major stock market indices closed in negative territory, while in the United States, markets closed near parity. Two key elements have driven this trend: the increase in returns, especially in the longest part of the curve, e the rise in oil prices. The energy sector shone, a predictable move given recent developments.
It was there fifth consecutive selling session for the STOXX 600, as well as for the main price lists of Milan, Frankfurt, Madrid and Paris. The main concerns are the potential prolongation of high interest rates, a concern reiterated yesterday by ECB member Elderson, who said that interest rates may not yet have reached their peak, despite the ECB raising rates for tenth time in a row this month. This apprehension is also combined with the continuing uncertainty linked to the slowdown in economic growth in China.
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These headwinds have added up to local pressures, such as the trend of the Spread in Italy, awaiting the publication of the Nadef (published last night), and the lack of a government in Spain. The leader of the Spanish People’s Party, Alberto Núñez Feijóo, failed to gain sufficient support in the Spanish parliament to be appointed prime minister. Furthermore, declines in national indicators emerged: French consumer morale hit a 4-month low, and unemployment recorded its biggest increase since the crisis period caused by the pandemic. In Germany, consumer confidence has weakened more than expected, due to the high inflation rate, bringing the propensity to save to the highest level since 2011. All these factors add to the effects of the ongoing restrictive monetary policy.
The ECB recently published data on monetary trends in the euro area, highlighting the continuing monetary contraction. Bank loans to households increased just 1% year-on-year in August 2023, the lowest level since the same month in 2015, due to the continued slowdown in credit demand. Furthermore, growth in loans to businesses slowed sharply to 0.6%, marking the lowest level since December 2015. Overall growth in credit to the private sector, which includes both households and non-financial corporations, is fell to 0.6% in August, the weakest pace since September 2015. A coherent overall picture in the effective transmission of economic policies which could constitute a convincing argument for not taking further rate raising actions at this time.
In the United States, markets came under pressure following a weak European session and a renewed rise in Treasury yields. Additionally, the standoff in Washington is negatively impacting stocks. However, stocks received unexpected support from Minneapolis Fed President Kashkari’s dovish comments. Kashkari said the government shutdown and continued auto strike could slow the economy on their own, requiring less monetary policy action from the Fed.
Today, Italy is at the center of the markets’ attention following the publication of the Update Note to the Economic and Financial Document (NADEF) last night. Land revisions made reduced economic forecasts and pushed the deficit to a higher level. To be precise, the projected deficit for 2023 was set at 5.3% of GDP, while the government increased the deficit target for 2024 to 4.3% of GDP, up from the previous 3.7%. Furthermore, economic growth prospects have been revised downwards, with Italy’s GDP growth estimated at 0.8% this year, down from the 1% previously forecast.
There right-wing coalition led by Giorgia Meloni now faces a delicate challenge in budget preparation. It must strike a balance between the need to reassure global markets by demonstrating a commitment to fiscal discipline, and the desire to deliver on election promises of tax cuts. Furthermore, Italy faces failure to meet the 3% deficit limit imposed by European rules, with forecasts indicating deficits of 4.3%, 3.6% and 2.9% over the next three years, putting Rome under political pressure from Brussels. Despite this, the market seems to have responded positively, with the spread decreasing slightly.
*Comment by Gabriel Debach, Italian market analyst at eToro.
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