Markets at maximum uncertainty

Money, according to the economic proverb, is scary. According to a DWS report, Deutsche Bank executive is proof that major global financial assets have accumulated a combined loss of nearly 30 billion euros (15 million shares, 14 million bonds and 0.85 billion crypto assets) so far this year. . To put it in perspective, the amount is just slightly less than the GDP of the world’s first two economies combined (€19 billion from the US and €14 billion from China in 2021) and multiplies Spain’s GDP by 25 (1.2. billion).

Investors are thus responding to the radical uncertainty that has gripped the markets in recent months with big sales. The aggravation of the pandemic in China, which re-affected global supply chains, and the impact of Russia’s invasion of Ukraine, in particular, on the energy markets have pushed inflation to levels not seen for decades. In any case, what worries market agents the most is the response central banks may have to contend with this upward price spiral. The question is whether monetary authorities will be able to stop this before global economic engines are thrown into recession and suffocating public finances.

less growth

For now, the consensus of analysts compiled by Bloomberg has revised the 2022 growth forecast for the United States from 3.9% to 2.7% since the beginning of the year, while for the eurozone it has increased from 4.2% to 2.7%. was dropped. %. In Spain, the panel of Funcas experts also revised their GDP forecast from 4.8% to 4.3% this year, slowing to 3% in 2023. Also, additional discounts cannot be ruled out if prices continue to rise and continue to lower prices. household purchasing power.

The ball is in the court of central bankers, who are facing a difficult situation. The current rise in inflation is due to supply problems (energy prices and supply problems mentioned above), but monetary policy can basically only act on demand, making it more expensive to cool the price of money. Despite this, the Federal Reserve has already started raising rates, and it won’t be long before the European Central Bank (ECB) follows in their footsteps because the ultra-broad policy they’re struggling with is unsustainable in the current context. .

Thus, oil nearly doubled its price in twelve months, from $66 to $111 a barrel in the case of Brent (reference in Europe), while the price of gas increased almost fivefold, from 18 to 87 euros per megawatt hour. The expectation of rate hikes and the end of ECB’s borrowings also triggered the debt interest rate. The risk premium (the difference between the reference German bond and the Spanish 10-year bond, which is an indicator of the market’s default risk) has increased from 71 basis points to 113 basis points since January.

As a result of all this, the MSCI World index, which includes the stock markets of the 23 most developed countries, has lost approximately 19% since the historical maximum it pointed out at the beginning of last January. Thus, despite being about 60% above the minimum marked when the pandemic broke out in March 2020, it fell to January 2021 levels, when the vaccination process against the coronavirus was still in its infancy. MSCI ACWI adds the 27 largest emerging markets (including China) to the previous one, down 17% from January highs but still 58% above the lows at the start of the global lockdown.

stock market correction

The US stock markets, which are the main responsible for the rise in world stock markets during the pandemic period, are also the main driving force of the current declines. The Dow Jones, which includes 30 of the largest listed companies in the country, began an almost uninterrupted climb from its lowest point in the previous crisis (March 2009), causing it to break record after record despite the trough it has suffered since March 2013. Suffered due to covid-19 in the spring of 2020.

However, since the historic maximum reached in January, it has fallen by about 16%. The Standard & Poor’s 500, which includes the nation’s fifty largest listed companies, has also dropped nearly 20% since then.

A particular example is the Nasdaq 100, which brings together one of the world’s largest tech companies. The index broke through the trough of the pandemic in just three months, reaching record highs that peaked last November. It has since dropped 30% amid growing fears from investors that the industry is particularly overvalued, beyond the cyclical effects.

For its part, the selective EuroStoxx 50, featuring the fifty largest listed companies in the euro area, did not come close to its all-time high in March 2000, during the pandemic, amid the dotcom bubble, but initially in January, since 2007, namely the Big It was at maximum levels before the outbreak of the successive crises that created the Financial Crisis. Since then, it has dropped almost 17%.

The Spanish Ibex 35, which has tended to lag behind since the previous crisis, continues to behave atypically. The index of the 35 largest listed companies in Spain has never recovered from its pre-quarantine level and reached its highest level during the pandemic last June. It has since dropped 8.6%. However, it has outperformed the main world stock markets so far this year: it fell just a little bit 2.6%.

Source: Informacion


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