Markets not affected by national policy

The Spanish municipal and regional elections, held on Sunday, May 28, and the early announcement of the national elections grabbed all the headlines this week, but failed to make the news as far the markets were concerned. “The market reaction was practically zero,” says Alberto Matellán, chief economist at MAPFRE Inversión, despite the fact that stock exchanges don’t thrive on uncertainty.

The main indicator of the Spanish stock exchange, the IBEX 35, closed Monday’s session only slightly up (0.11%) on the previous Friday’s close.

Matellán also pointed out that in such a globalized economy, “the national policy of any given country has very little influence” except in specific cases, so growth and interest rates continue to be the key factors driving stock prices.

This Wednesday saw the release of Chinese manufacturing PMI, which fell to 48.8 points against the 49.4 analysts were expecting, and is down from the previous month’s 49.2. The overall PMI is at 52.9 points, down from April’s level of 54.4, due to the drop in manufacturing.

The Chinese reopening seems to be losing steam. Matellán points out that this deterioration is happening in all countries in a synchronized manner, something that was broadly expected, although not so much in China. "It's true that less deterioration was expected than elsewhere. It's a robust economy because the problems that dragged it down are easing off," he points out. And on top of this, there is the oil correction. In the opinion of MAPFRE Inversión’s chief economist, this is happening because investors are more negative about growth expectations.

As far as currencies go, the euro appears to be weakening against the dollar, which Matellán says is down to two factors. On the European side, growth seems to be weakening, which could cause the ECB to relax its monetary measures, and in the United States, expectations that the Fed will lower rates are fading and investors anticipate a shift toward more aggressive policies, without ruling out increases in additional rates.

Is inflation on the way down?

Inflation data were also reported in France, which showed prices falling by nine tenths of a point in May, to 5.1%. Matellán believes that, despite the positive decrease, it’s too early to make a firm call.

"One data point doesn’t make a trend. Central banks can’t make decisions on the back of one piece of data. What we see moderating now are the most volatile elements of the CPI: energy and food," he commented, warning that this rate will be more volatile.