DIt is well known that anticipation is considered the most beautiful joy. It's the same on the stock market. No matter how much leading central bankers warn against exaggerated interest rate reduction fantasies. This is reflected in the markets. At the weekend, Bundesbank President Joachim Nagel made a new attempt to capture expectations in an interview with the Frankfurter Allgemeine Sonntagszeitung and Fed President Jerome Powell in an interview with the American television station CBS. Nagel said: “In my opinion, the price outlook is not yet clear enough: That is why it is now too early to cut interest rates.”
In medicine as well as in monetary policy, it is important to keep a close eye on the patient. “The dose must not be reduced too early and what has been achieved must not be jeopardized,” said Nagel. Powell said: “The job is not done yet.” It would be wisest to take some time before raising interest rates. “The data must confirm a sustained decline in inflation to the target value of two percent,” said the President of the US Federal Reserve.
This did not change the interest rate expectations on the markets on Monday. Around five interest rate cuts are still expected on both sides of the Atlantic over the next twelve months. The markets don't care whether it starts in March or June. Keyword anticipation. What is more important is that nothing changes in the general basic expectation. And here the stock markets have taken a very optimistic position since October. They rely on the famous Goldilocks scenario, based on an English story from the 19th century, according to which the moderate middle path is considered the ideal. For the bears in the fairy tale, the porridge should not be too hot or too cold and the stool should not be too hard or too soft.
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And it is exactly such a scenario that investors are speculating on in the current bull market on the markets, which pushed the Dax to a record high of 17,004 points on Friday and is also currently giving Wall Street new highs almost every day. Inflation is expected to fall to a moderate level that will allow the central banks to make some interest rate cuts, also to a comfortable level, while economic growth will pick up just enough to give companies increasing profits and sales without immediately raising new fears of inflation.
Such a scenario is rare and usually short-lived. All sorts of conceivable risks can throw a spanner in the works, not to mention the particularly nasty events that no one can account for.
Currently, many warning signs are simply ignored. On Friday, the January labor market report from America was so positive that there was a lot of auto-suggestion not to see it as a clear sign that the American economy could develop stronger than expected this year – with higher wages then cause higher prices and ultimately cause the Fed to cut interest rates less or not at all.
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