Restless markets, falling inflation expectations: stagflation risk is growing
The main ones next week market mover (the factors that move the market) will be i data on US retail saleson the agenda for next Tuesday, a series of Chinese indicatorstomorrow, and, always tomorrow, the spring report of the European Union. In the background remain the crisis in Ukraine, the high inflationthe economic slowdown and, in perspective, the aggressive ones moves by central banks on taxi and the arrival of the stagflation. “For the stock exchanges it is the worst climate – he comments Antonio Cesarano, chief global strategist of Intermonte – because you have: slowdown, less liquidity, higher rates and cheaper shares than bonds “.
The response of the Bags last week it was negative. Despite the rally on Fridays, Wall Street closed the octave in negative. The Nasdaq left 3.8% on the ground, the S&P hit its longest streak of weekly losses since 2011 and the Dow Jones for the first time since 2001 he entered a streak of 7 consecutive losing weeks. In short, on the stock exchanges, Cesarano notes, “bad weather has fallen, with brief clearings, like that of Friday and this trend is destined to last, if anything with some clearing more frequently if more positive news from the war front arrives”. And her is a fairly shared prediction.
“I’ve never seen a bear market end in the middle of a tight monetary cycle,” he comments Ron Insanasenior advisor of Schroders North America. “Usually – he adds – to really bounce a market must be convinced that the Fed is coming to the end of that cycle, so I lean towards the thesis that Friday’s was a rebound within a bear market “.” I expect other drops – predicts Sam Stovall, CFRA analyst – and I think that in the weeks to come, we will have to go through more distressing volatility. “
INFLATION EXPECTATIONS DECREASE, STAGFLATION RISK GROWS
Last week we saw a marked decline in bond yields. 10-year T-bonds fell from 3.2%, the top in 3 and a half years, to 2.9%. “In reality – explains Antonio Cesarano, Intermonte’s chief global strategist – nominal rates have fallen but not the real ones and this is because inflation expectations continue to be in a decreasing trend at a faster rate than nominal rates, which began at the end for April. An example? The 5-year inflation expectations in the US fell by almost one percentage point, from 3.73% at the end of March to 2.95% “.
In practice, from the monothematic ‘focus’ of inflation we are also moving to consider the reasons for growth, with therefore an increase in the perception of risk stagflation. Why is this? Let’s say that at the end of March the lockdown in China and therefore the fear of a slowdown in the Chinese economy. And then it was perceived that the conflict in Ukraine would not have been a blitzkrieg but would have lasted longer, penalizing global growth. Furthermore, at the end of April, GDP came out that were on average below expectations, in particular the US one, which fell by 1.4% in the first quarter and the French one, stagnating. “The climate has changed – says Cesarano – Fed and ECB have introduced the word ‘recession’ into their vocabulary. Maybe to deny it, to say that it won’t happen, but they talk about it”.
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