The Powell-Lagarde tandem knocks down the market: Watch out for what’s coming

By: MRT Desk

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The Powell-Lagarde tandem knocks down the market: Watch out for what's coming

Whether world markets fell after the Press conference by Jerome Powell, chairman of the US Federal Reserve (Fed) on Wednesday, Christine Lagarde, its counterpart in the European Central Bank (ECB) finished finishing the stock markets on Thursday.

Some falls that continue this Friday, judging by the movements today in Ibex 35, CAC 40 or DAX among others.

Now what? Analysts make their notes on what aspects to pay attention to now.

“The ECB made it clear that it still has a way to go in terms of restrictive monetary policy and that rates will remain at their terminal rate for quite some time,” BBVA Research said in a report.

“In line with the Fed, the ECB conveyed an idea of higher rates and for longer,” says Bankinter in its daily market commentary.

“The ECB’s outline yesterday of its plan to start reducing its balance sheet ‘caught many investors on the wrong foot’, who took a ‘reality check’ when they saw that all the main Western central banks are considering the same scenario: high and lasting inflation, weak economic growth with possible entry into recession of some economies and rising interest rates, that will remain at elevated levels for quite some time,” Link Securities said in its daily report.

“If we add to this apparent ‘surprise’ of many investors the fact that the bond and equity markets are very overbought after the strong rally they have experienced in the last two months, yesterday’s reaction of them should not surprise anyone,” these analysts add.

Alberto Valle, director at the consultancy Accuracy, points out in a comment sent to by email that, “from here, there are 2 key milestones. The first, the CPI data for December, to see if a moderation in inflation is confirmed taking into account that same data in December 2021 (which was not good) in the Eurozone. That data will largely determine the amount of the next increase. The second and most important, the CPI data for March (impacted by the start of the war in Ukraine).”

“If by the base effect, we see a significant drop in the CPI, then the ECB is going to understand that its policies are working (as it seems to be in the US) and may relax the increases, which does not mean that they begin to lower rates, but rather the beginning of a stage of interest rates at levels above 3%”, adds this expert.

Konstantin Veit, portfolio manager at PIMCO, said: “Interest rates will remain the main instrument of monetary policy, tools to safeguard the orderly transmission of monetary policy will remain in place and QT will focus on a gradual and orderly passive reduction of PPP reinvestments over time.

The Powell-Lagarde tandem knocks down the market: Watch out for what’s coming

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