U.S. strength dissipates hopes for lower rates

The GDP data coming out of the United States has proven to be considerably stronger than analysts expected, with the Q4 2023 number standing at 3.3%, compared to the 2% forecast. Consumption was the driving force behind the growth, up 2.8% compared to the previous quarter.

However, the strength that the U.S. economy is showing is pushing back the expectations of up to five interest rate cuts by the U.S. Federal Reserve (Fed) discounted by the markets. Javier de Berenguer, investment manager and fund selector at MAPFRE Gestión Patrimonial also noted that employment data is solid, with more than nine million job vacancies open.

"The U.S. economy is holding on and shows no signs of moderation. In fact, the labor market is heating up even more, which in itself is a very strong argument for not lowering rates," he explains.

The European situation is quite different: eurozone GDP figures out this week show growth has stagnated, but a technical recession was only avoided by recording a variation of 0%. De Berenguer points out that the figures are weak and that expectations aren’t much better. However, given the weakness of the data, he added that it’s “easier” to show higher growth in the coming quarters.

Countries with a greater reliance on tourism have shown greater strength than other more industrialized countries. “There has been an obvious change in consumption patterns, which has caused economies like Spain to grow more than others like Germany,” he explains.

Despite this weakness, the president of the European Central Bank (ECB), Christine Lagarde, explained in the press conference following the meeting that “it was premature to discuss rate cuts.” In March, the organization will publish its new economic projections, which could give a clue to the new road map.

Business results

The results season continues, both in the United States and in Europe. Tech companies continue to attract the attention of analysts and investors, and although some of them have met or even beat expectations, they have seen their stock prices drop, as has been the case with Tesla, Microsoft and Alphabet.

De Berenguer explains that these companies haven’t stopped growing and there are sufficient arguments for them to recover lost ground, although he anticipates that prices may have a rocky landing. “As soon as we hear some negative comments that go beyond the optimistic growth scenario, the market will punish these companies heavily” he says.

In Spain, banks were among the first to present their earnings, and Bankinter, Santander and BBVA delivered record profits thanks to the increase in the interest margin, which has widened on the back of rate hikes. Furthermore, this increase in the price of money hasn’t harmed the banks, who haven’t paid depositors any more.

"We don’t believe that the interest margin will continue to increase in the coming quarters, but banks that have closed loans in this period will continue to benefit from the rise in rates. We’re also seeing that banks with international exposure have found more favor with investors when it comes to reading the balance sheet," says De Berenguer.