No map in the markets | Economy

Inflation had been without us for a long time until it returned – and with what force – in the last year. In the United States, especially, there is a bloodletting in the markets. Several generations have grown up and lived without significant inflation and without having evidence of how central banks are spending it to stop these price increases. For this reason, a large part of analysts and traders, accustomed to almost permanently rising markets and great liquidity provided by the monetary authorities —which always solved problems— have been left without a map. If they go to ask others for advice traders more experienced are not going to have many alternatives either. The reason is that previously there were processes of accelerated sale of shares or bonds, but not large falls in the two markets at the same time. This time, there is nowhere to go.

The spigot of the market crash initially occurred in the United States with the departure of investors from the big technology companies and Nasdaq. It has become widespread and now everyone seems to want to leave almost all sectors. Neither technological, nor manufacturing, nor other things. All down. From a financial perspective, there is a belief that the markets have been somewhat artificially supported. Now the correction seems to combine several drops that had to have happened before. Before normalizing, it was necessary to correct what was inflated (technology and bonds, for example) and go through a threat of recession in a context of inflation. Part of the problem also seems to come from markets not buying into central banks’ inflation expectations. They think it will last longer than they project. Until now they hadn’t cared because they were always wrong when they said it would go up and it didn’t. In addition, they believe that the central banks have reacted late, including the Fed. And what about the ECB. We had to wait until this Monday for Christine Lagarde, its president, to have suggested two rate hikes starting in July and the immediate reaction of the market was not bad. It is critical that central banks regain credibility in this turbulent context, so that expectations towards lower inflation in the coming months are once again anchored.

From a macroeconomic perspective, the news for the near future is not encouraging. The threat of recession is there, but it is not the only thing, as there are concerns about a food crisis and serious energy problems next winter. As long as it remains, it will continue to push markets lower. With much added uncertainty from the fallout from the Ukraine war and politics covid zero from China that is increasing the tension in the global supply chain and generating new rounds of price increases and, probably, recession, even for the Asian country itself. The end of both would be great news, which would give the global economy a break and a turnaround for the better in the markets. Meanwhile, we still don’t have a map on where and how to invest in the markets.

He knows in depth all the sides of the coin.


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