Home » Wall Street, the Fed’s hard fist against inflation has opened a negative streak not seen since the Great Recession of 2008

Wall Street, the Fed’s hard fist against inflation has opened a negative streak not seen since the Great Recession of 2008

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Wall Street, the Fed’s hard fist against inflation has opened a negative streak not seen since the Great Recession of 2008

The worst month since March 2020, when the covid pandemic which in recent years has upset our lives. And the worst quarterly negative streak since 2008the era of the global financial collapse detonated with the crisis of Lehman Brothers. If these are the benchmarks, there is little to be calm about looking at the performance on Wall Street in September.

A September that went on file with a triple “minus” sign: the three reference indices closed the week, the month and the quarter in deficit. In the first nine months of 2022, the New York Stock Exchange experienced three consecutive quarterly declines, the longest losing streak for the S&P 500 and Nasdaq since the Great Recession. Instead, for the Dow Jones, you have to go back to 2015 to find a worse set of quarterly losses. On Friday, the Dow Jones fell 1.70% to 28,725.51 points, the Nasdaq lost 1.51% to 10,575.62 points, and the S&P 500 fell 1.48% to 3,588. , 70 points. For the S&P, the quarterly balance between June and September thus fell to -5.3%. The technology index, on the other hand, reached its lowest level since July 2020, down by more than 4% in the quarter.

The problem with the markets is that the Fed doesn’t give up an inch on inflation. Yesterday the PCE data, one of the most monitored in Washington to understand how prices are moving, again gave signs of strength beyond expectations. “It will still take time” for the monetary tightening initiated by central banks to lead to victory in the fight against inflation, warned the vice president of the Fed. Lael Brainard, according to which the cost of money will have to remain high “for some time” even after consumer prices begin to fall “and be sure that inflation is returning to its target.” Lainard, who was speaking at a conference in New York, also added that “inflation is very high in the United States and abroad and the risk of further inflationary shocks cannot be ruled out.”

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“The market is realizing that the economy will potentially slow down rapidly, but the Fed may do nothing to prevent it,” he told the Financial Times. Peter Tchir, head of Academy Securities’ macro strategy. Added to this are always new headaches, which in Europe correspond to the energy crisis and the Tsunami that hit the UK markets after the rash decision by Prime Minister Truss to launch a fiscal stimulus plan which – according to investors – public finances risk: “With the volatility on Gilts (British government bonds, ed) and liquidity deteriorating, more and more investors are agitated at the potential accelerated retracement of stock and bond prices,” added Tchir.

Luca RiboldiBanor Sim’s chief investment officer, explained in a note on Friday that “the purpose of the Fed is to send the US economy into recession. They did not say it explicitly, but the meaning is “, which is why” the opinion shared among operators is that the recessive scenario is the most probable one. that “the recession is deep enough to bring down aggregate demand with repercussions on the prices of products, goods and services. This phase is the most delicate one. There will be no linear process. Some goods and services will decline rather quickly. Think of food, clothing and household products. Other services such as travel costs, for example, will suffer price transfers only in the presence of large reductions in energy costs, fuel in the first place. Then there is the issue of rents, which, on the contrary, will still take time to give signals of reversal and still weighs heavily in the CPI (consumer price inflation) indices. But sooner or later a balance will be struck. The strength of the dollar is giving a big hand to Fed in achieving its purpose. A strong dollar, ever stronger, makes the prices of imported goods increasingly cheap. It actually helps import deflation into the US. This translates into lower consumer prices “.

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If on one side of the Atlantic there is therefore a Fed that goes straight on its path of voluntarily penalizing the US economy, on this side the tension on the United Kingdom remains palpable, so much so that Standard & Poor’s Global Ratings it worsened the outlook on the Crown’s ‘AA’ rating to “negative” from “stable”. The updated picture for London “is subject to further risks”, writes S&P, noting that following the tax cut program announced by the new executive on September 23, “we estimate the deficit to grow at an average of 2.6% per year. until 2025, with the debt continuing on an upward trajectory contrary to our previous expectations of a drop in percentage of GDP starting from 2023 “. The BoE intervened on the market to cool the tensions, the effect was there but the Wall Street session on Friday shows that the concerns are well rooted.

Without forgetting that inflation also bites the Old Continent. “In September 2022, the inflation rate rose to 10.0%, from 9.1% the previous month. As in previous months, energy prices are the main driver (+ 40.8% in September) However, the 11.8% rise in food prices is also having an increasing impact, particularly on lower income brackets, “he wrote. Ulrike Kastens, Economist Europe di Dws commenting on the latest data. “In addition, the prices of durable consumer goods continued to rise (+ 5.6%), which is also reflected in a new increase in the core rate, which went from 4.3% in August to 4.8% in September. . This figure will be closely monitored by the ECB as the price trend continues to widen. Leading indicators, such as producer prices and surveys on price trends, indicate that the end is not yet in sight. ” The ECB keeps the bar straight on monetary tightening, even if the governor Ignazio Visco disputes the Fed’s blind pursuit: the differences between the US economy and that of the Eurozone “also suggest that assuming that the ECB will blindly follow the Federal Reserve in the coming months could be a serious mistake”, said the Bank’s chief of Italy.

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The set of tensions, as well as on the stock and bond markets, is presenting the account on the currency front, where a reverse war has been unleashed that leads everyone to try to defend themselves from the super-dollar. Are we heading towards a currency crisis? “We are already there – says Amundi – We are currently reaching levels that have not been seen for decades. The normalization of global monetary policy is implemented by central banks with different timing and speed, which implies an increase in forex volatility. In addition, forex. it is a market in which a number of different factors are also at stake, including the current geopolitical situation, a slowdown in global trade and, potentially, a rebalancing of foreign exchange reserves. “

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