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Is stock market uncertainty more harmful than pessimism?

May 25, 2023

Redacción Mapfre

Redacción Mapfre

Expectations about economic growth are always a source of interest in the markets, but now, in an environment of rising interest rates and persistent inflation, they have become one of the biggest concerns for investors.

In this regard, this week the German Economic Research Institute (IFO) published the results of the May business confidence survey, considered by economists to be one of the best qualitative indicators of market sentiment. This month’s survey showed greater pessimism with respect to Germany's economy, with the index falling to 91.7 points from April’s 93.4, having enjoyed six successive hikes previously.

Alberto Matellán, chief economist at MAPFRE Inversión, notes that it’s not so much pessimism that justifies this behavior in the market as an increase in uncertainty about what’s going to happen in the coming months. "People think about whether to buy more, invest more or take out more. If they don't know what's going to happen, they stop," he explains.

This uncertainty is reinforced by events such as China's veto of American Micron Technology. “Many countries are beginning to think that technology should be produced where they can control it,” he commented, noting that what is important in this area is the tendency of countries to adopt measures of this type, as opposed to the decisions that are made in the different territories on a daily basis.

Matellán emphasized the importance of the market focusing more on inflation and not so much on growth, as it is “resisting more than expected” in the United Kingdom, the United States and Europe, especially in the case of the underlying rate.

 

Are we edging closer to an agreement on the debt ceiling?

The debt ceiling remains one of the main topics of the week, as the dreaded X-Day approaches. The expected default date is June 1, as Treasury Secretary Janet Yellen warned a few weeks ago.

"A few years ago they reached an agreement at the last moment. We don't know when or how, but the same thing will happen this time round," Sancho says, referring to the meetings between U.S. President Joe Biden and the opposition.

 

25th anniversary of the European Central Bank (ECB)

The ECB celebrates its 25th anniversary this week, coinciding with one of the biggest inflation shocks in recent decades. Matellán believes that, while there are things that should have been done differently, it’s very easy to “criticize a posteriori and with the economics manual in hand.”

Inflation will condition the ECB's movements

Inflation will condition the ECB's movements

Inflation in the eurozone, despite the notable decline seen since peaking in 2022, continues to fall less quickly than the European Central Bank (ECB) would like. After learning yesterday that inflation in Europe was 2.5% in June, Alberto Matellán, chief economist at MAPFRE Inversión, explained that this level, although “reasonable,” will continue to limit the ECB as far as future interest rate cuts go.

French election puts pressure on European fixed income

French election puts pressure on European fixed income

The European fixed income market has seen an upward movement in the last month largely due to the economic and political uncertainty in France. This follows President Emmanuel Macron's call for elections, which were won in the first round by Marine Le Pen's party, explained MAPFRE AM's Fixed Income Manager, David Iturralde, on Radio Intereconomía.

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