The increase in long-term rates, which further restricts global financial conditions, is something that, as we have pointed out at the time, causes an increase in the financial costs of companies, weight -at their results and their investment capacity, penalizing their valuations and, in addition, increasing the attractiveness of fixed income in relation to variable income.
In addition, and in the specific case of the US, real interest rates are already positive, which encourages savings rather than investment. Finally, and this past month, the outbreak of the conflict in Gaza has added to the already complex geopolitical scenario, a scenario that the war in Ukraine and the confrontation between China and the West over economic, commercial and technological issues , comes to some. time, rarely.
In this way, it can be said that everything that could go wrong for equity interests has gone from bad to worse in recent months. It remains to be seen if, as has happened on many occasions, the stock markets will be able to overcome several open fronts and recover the good tone at the beginning of the year, making the current correction another – usually happens. every year -, or if, on the contrary, all the factors listed lead the markets to deepen the correction and, however, in the most negative scenario, enter a bear market, which means that the indices lose more than 20 % since its most recent high.
We, and despite the current negative sentiment prevailing in the markets, are betting more on the first scenario than the second. Although we are not clear when the markets will continue to rise, we are sure that the moderation of long-term bond yields will play a key role in this, something that is closely linked to the decline in inflation expectations and that markets will begin to discount future cuts in official interest rates.
So far, investors are facing an intense week where central banks, macroeconomics and quarterly business results will play the starring role. Therefore, in the next few days the monetary policy committees of the Bank of Japan (Tuesday), the Federal Reserve (Tuesday and Wednesday) and the Bank of England (BoE) will meet. As always, the meeting of the Federal Open Market Committee (FOMC) of the US central bank is the most decisive for the behavior of bond, stock and currency markets.
In principle, investors believe that the Fed will not take any action on this occasion, and that it will leave its reference interest rates unchanged in the range of 5.25% – 5.50%. However, what the FOMC says about possible future moves and how they view the US economy and inflation will be decisive. Any indication that a new rate hike is “still on the cards” could cause new tensions in the markets. Conversely, when the Fed suggests that the process of raising rates is over, investors in bonds and stocks celebrate with a hike.
Regarding the macroeconomic agenda of the week, it should be noted that, in addition to the publication of the main European economies and the US in October purchasing managers’ index, the PMIs and the US ISM, in manufacturing (Wednesday) and services ( Friday), this week a lot of important employment data will be published in the US, where we will highlight non-agricultural employment, which will be released on Friday and which will serve to determine the current state of the one passing through The market in US labor, whose hardness has worried FOMC members for a long time.
Likewise, this week the business agenda is very intense, with more than 150 companies in the S&P 500 releasing their quarterly numbers and many European companies doing the same on various regional stock exchanges. However, it is the numbers released on Thursday by the American multinational Apple (AAPL-US) that will attract the most attention of investors, because they will serve to understand the real business opportunity that the world technology sector is going through.
So far, the quarterly earnings season is going well on Wall Street and relatively weak in Europe. For its part, the reaction of investors is usually negative, rewarding little or nothing to companies that exceed analysts’ expectations and even maintaining their expected profits or changing them upwards, and severely punishing companies. what is expected by consensus and, above all, those who change their expectations downward.