“The markets can absorb the interest-rate hikes in the U.S., which are being discounted”
The U.S. bond market is already discounting three interest-rate hikes in 2022. Ismael García Puente, fund selector at MAPFRE Gestión Patrimonial, acknowledges that the market has been quite erratic in response to, for example, Jerome Powell's reelection or the appearance of the new omicron variant, “but now it believes the Fed will act quickly to prevent inflation from becoming an endemic problem for the economy.” And in fact, short-term interest rates have risen more than long-term rates, flattening the yield curve, while inflation expectations have remained stable. "If there are no surprises in terms of inflation, the market can absorb these three interest-rate hikes without a problem," he adds in his weekly talk on Negocios TV.
Monetary policy in Europe is also attracting attention. This Thursday, the European Central Bank (ECB) may determine what happens with the Pandemic Emergency Purchase Program (PEPP) and whether it finally ends this aid in March of next year. "We think it will expand the previous program it had been using to buy assets because the ECB wants to give itself a lot of flexibility due to the existing uncertainty." Of course, he warns, a situation may arise in which, for the first time in seven years, there are more bond issues than redemptions and purchases by the central bank, "and this can be dangerous, mainly for the periphery."
In the final stretch of the year, analysts are updating their forecasts. García Puente believes that in 2022 we will begin to see the effects of the arrival of Next Generation funds, "which may benefit European equities." As for sectors, he is betting on the real estate sector, for example, the German residential market, and on green energy, "the topic that we feel the most comfortable with.”