A fresh batch of significant inflation data from Europe reinforced the case for further rate increases. This will likely slow one of the world’s greatest economies. Moreover, it caused US equity futures to tremble and bonds to plummet.
S&P 500 contract prices fluctuated, with the index expected to fall by more than 2% in February. The central bank’s warnings that interest rates must increase further and remain high until inflation goes back to long-term objectives have put pressure on stocks. Futures for the Nasdaq 100 reduced previous gains. Target Corp’s early trading was unaltered. Overall, the wary prognosis countered a robust fourth quarter.
Treasury yields increased, with the benchmark 10-year yield moving closer to 4%. This is a level traders regularly monitor. After France and Spain announced inflation that exceeded expectations, European bonds plummeted, driving Germany’s benchmark yields to a 15-year high. Moreover, the declining dollar index does not come as a surprise.
The intensifying fight against inflation is toxic to US & EU stocks
Inflation has remained immune to tougher policies. Because of worries that central banks will intensify their fight against inflation, both US and European stocks ended last week with their largest 5-day declines of the year. According to analysts at Citigroup Inc, positioning data reveals that investors are growing more gloomy as they increase their short positions in both US and European equities futures.
According to market forecasts, the European Central Bank will keep increasing rates through February 2024, with a fully priced 4% ECB terminal rate.
Wei Li is a global chief investment strategist at BlackRock Inc. He believes that equity markets are underestimating the upcoming macro obstacles. This doesn’t imply that short-term rallies, like the one we witnessed in January, are impossible.
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