Why the calm in the markets will not last

article content

A look at the markets of Dhara Ranasinghe the next day.

Last week’s market turmoil that triggered the biggest weekly drop in global stocks since March 2020 has given way to a degree of calm. But don’t bet it will last.

In short, until there are clear signs that inflation in the major economies is coming down from the highest levels in decades, allowing central banks to lower the monetary tightening pedal, volatility will remain.

The news on Monday night that IG Metall, Germany’s most powerful union, wants to push through wage increases of between 7% and 8% in a next round of negotiations is a reminder that price pressures are building. expanding. Not surprisingly, that triggered a sell-off in European bonds later in the day.

Announcement 2

article content

Yields in US bond markets, closed Monday for a holiday, are rising in early London trading.

And note this comment from ECB Director Christine Lagarde speaking on Monday night. She said the risk of an abrupt correction in Europe’s financial and housing markets is high, adding that risks to financial stability have “increased significantly” since the beginning of the year.

Some fear that the sharp sell-off in global markets is tightening financial conditions faster than expected, raising the risk of a sharp economic slowdown.

For example, funding costs for investment-grade companies in the euro area have risen above 3% for the first time since June 2012, with interest rates doubling in less than three months, Axa Investment estimates. Managers.

Announcement 3

article content

However, some central banks are rejecting the notion of overly aggressive rate hikes. Australia’s central bank chief Philip Lowe signaled on Tuesday that further policy tightening is in the offing, but downplayed the chances of a 75bp move.

Asian stocks are up, as are US and European stock futures. And there is also a respite for Bitcoin, which is holding above $20,000 and failed to forcefully break below the psychologically significant level in recent days.

Key developments that should provide more direction to markets on Tuesday: – Japan’s PM Kishida signals preference for BOJ to keep policy loose – UK wage deals remain at 4% as inflation rises advances: XpertHR

– Andrea Enria, ECB Banking Supervisor; Olli Rehn – German Finance Minister Christian Lindner Speaks – Philadelphia Fed Releases Non-Manufacturing Business Outlook Survey for June – US Existing Home Sales.

(Reporting by Dhara Ranasinghe; editing by Sujata Rao)

Commercial

Comments

Postmedia is committed to maintaining a lively but civil discussion forum and encourages all readers to share their thoughts on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We’ve enabled email notifications – you’ll now receive an email if you receive a reply to your comment, there’s an update in a comment thread you follow, or if a user you follow comments. visit our Community Principles for more information and details on how to adjust your E-mail settings.

Leave a Reply

Your email address will not be published.