Central Banks Raise Rates Despite the Coming Recession
What if inflation is playing hide-and-seek with central bankers? Or to put it more crudely. Is it not by chance that neither the ECB nor the Fed nor elsewhere are fully understanding what is happening? They were wrong the first time a year and a half ago claiming that the flame of prices was destined to go out. So they had let liquidity continue to stoke the fire. She except then call the fire brigade because the fire was out of control.
Now the opposite: they continue to cool the economy without realizing it the ice age has begun. The first time they justified themselves with the war in Ukraine which had exploded energy prices. (but in reality the price race had started earlier). And this time? It has been announced that the interest rate race will not stop despite the fact that the Fed has raised the cost of money ten times in the last year and a half and the ECB eight times in one year. Two more are planned both in Washington and in Frankfurt.
The markets look and don’t understand
The markets partly believe it and partly don’t. In the week of the Last Judgment with the sequential meetings of the Fed (June 14) and ECB (June 15) they went ahead with the turbo: eighth consecutive week of rise for the Nasdaq, fifth for the S&P 500 and third for the FTSE Mob in Milan . Last Friday, June 23, the slowdown: negative weekly balance of 1.5% for the S&P 500 and 2% for the Ftse Mib of Milan. In the morning, the PMI index, which measures economic activity, was published.
The Eurozone is not very satisfactory, France is bad, Germany is very bad. A wake-up call: Manufacturing costs fell at fastest pace since mid-2009, despite factory price cuts for a second month. It means that the increase in wages, so feared by central bankers because it is explosive on the accounts, is not a tiger but a big cat. Production costs in June fell at the fastest pace since mid-2009. Translated, that means the fall in energy prices leaves ample room for wages. And that’s why employment rises (even in Italy) and producer prices collapse, paving the way for a reduction in consumer prices.
The (wrong) predictions of Goldman Sachs
The markets look and don’t understand. A confusion that also envelops the highest and highest levels of world finance. According to Goldman Sachs, investors should seriously consider consolidating the S&P500 rally (+16% in the last three months) to protect themselves from the risks associated with the probable recession. He cited several indicators in this regard, including an excess of bullish positions on options, the strong rally seen in a very short period of time, high fundamental valuations, overly optimistic growth expectations.
Confused analysts
Too bad that the author of the research, David J.Kostin, had declared in February that European and Asian equities would have performed better of US stocks due to a decline in corporate profits. A call that turned out to be a flop in light of the results.
Carlo Bonomi speaks (Confindustria)
So some wisdom comes from a lateral point of view with respect to the stock exchanges. Charles Bonomithese days in the USA where he inaugurated the Confindustria headquarters, did not mince words: “The ECB must decide whether to be the central bank of all Europe or the central bank of Germany”, intimidated by a little inflation and not he realizes that it is now in a waning phase.
The article Inflation dances by itself. From Fed to ECB to Goldman Sachs no one understands comes from Truth and Business.