Compared to a month ago, i long rates they followed divergent paths. Not only divergent but paradoxical, in the sense that where they had reason to rise – the Use, where the economy is buoyant, inflation is rising (2,7% the latest trend for consumer prices) and the public deficit is gargantuan (15% of GDP this year) – instead they have dropped; while they are climbing inEurozone, where the economy lags behind America, inflation is lower, and the government deficit is less than half that of America.
In the US it's not just the yield of T Bond which fell, but also i market rates: the crucial XNUMX-year mortgage rate lost about twenty basis points between the beginning of April and the beginning of May. Behind these trends are the Fed assurances, who repeats every other day that he has no intention of increasing the cost of money.
Here we must report the injury of a former Fed Chairman, Janet Yellen, who, in his new role as Treasury Secretary, said rates could rise, only to be quick to point out that this was neither a forecast nor a recommendation.
In short, the markets are convinced that the liquidity created by the Fed continues to flush out for the economy: not even the boom in the real estate market, with house prices rising by 12% over the year and builders' confidence at an all-time high, has prevented mortgage rates from falling.
And they are convinced that, as reaffirmed by the Fed chairman Powell, even if inflation rises the Fed will maintain an expansionary policy given that the 2% inflation target should be considered as the cycle average, and if before it was, let's say, 1%, even if it went to 3% there would be no consequences.
As far as the 'Eurozone, where rates up Waist e btp they're up 20-30 basis points year-to-date, the explanation is benign. We had reported, in the previous ones Lancet, the statements, all the more significant as they come from a declared 'hawk', of the president of the Dutch central bank Class Knots, which on 8 April explained the philosophy: «If the rise in yields is due to better growth and inflation prospects, then it is benign, but if it is due to overfilling from other parts of the world, in this case it is entirely legitimate for us to oppose it".
Given that there was no overflow (as mentioned, US rates even dropped), one must believe that the slight rise in yields in Europe is due to the better prospects for growth and inflation (as demonstrated by the PMI indices and by the dynamics of consumer prices, where, moreover, in the data core in April slowdowns were recorded over 12 months – well below 1% – both in the Eurozone and in Italy).
Rather it is to explain why our spread with the Bunds he went up by about ten points. The thing is, there is one correlation between rate hikes and the rise in the spread. When rates are stretched, markets wonder which countries can be most hurt by a rate hike (even if, as just mentioned, the cause is benign). And, of course, the most (potentially) affected countries are those with a higher public debt, like, indeed, Italy.
In any case i real rates they continue to be low on both sides of the Atlantic – a little below zero in Germany and the US, and a little above zero in Italy – and well below the growth rates of the economies. So they add another useful piece to the mosaic of recovery.
For the you change, we said last month that major changes in the relationship between currencies were not to be expected. Indeed, the crucial change dollar/euro it is on the average of the last six months. Each change is subjected to the 'tug of war' of favorable or unfavorable factors. For the dollar, there is one big favorable factor – the growth differential – and an unfavorable factor: the rate differential, nominal or real. Another unfavorable factor is added, this time structural and with a very long fuse: the share of the dollar in the foreign exchange reserves of the rest of the world is decreasing. The Monetary Fund informs us that this share fell to 2020% in the fourth quarter of 59, the lowest level for 25 years. Play the growing role of alternative currencies, from the euro to the yuan. And also a surprising factor: le sanctions US finances. These, according to the "law of unintended consequences", have pushed the sanctioned (but also the punishable) to create payment channels that do not go through the dollar, from simple barter to bilateral agreements whereby two countries agree to pay and be paid in their own currencies. In short, the 'tug of war' seems to be military in favor of a (relative) stability.
About the yuan, the Chinese currency, like the euro, appreciated somewhat against the dollar: it is now at 6,45 – the strongest level since 2018 and about 9% better than a year ago. But here too, no recent outbursts: it too remains close to the average of the last six months.
We were optimistic about stock markets, and we continue to be (aside from possible short-lived fixes). Stock Exchanges grind record or nearly records, and not just a Wall Street: see the DAX German, the CAC french, the CSI300 Chinese, and even the FTSE Mib Italian (with the exception of footsie English – so they learn not to leave the EU!).
As already mentioned, the spontaneous tendencies of the economy, the possible and probable leap forward in consumption who are just waiting to draw on their accumulated savings, and the benevolent attitude of economic policies they can only comfort the stock markets. In 2022, it is true, the supports of public budgets will disappear – deficits will halve both in America and in Europe – but this will happen partly because of the automatic stabilizers, and partly why there will no longer be a need for strong discretionary stimuli, as economies will once again have learned to walk on their own.
There is only one possible plug in this rose garden: a chip recession. It is not yet clear whether the scarcity of this 'technological raw material' will have macroeconomic consequences, but human ingenuity should never be underestimated… We will adapt. Car manufacturers, which have overcome many other crises, could (in some cases they are already doing so) remedy the shortage with 'chip-lite' models. And the Nintendo, which is impressed by its most sophisticated play-stations, could churn out its old video games again, with a retro taste: we, orphans of the nice and moustached Super Mario, would be grateful…
Le alternative to stock investing? Cash and bonds, despite the slight increase in some yields, remain unattractive. L'gold it has once again exceeded $1800/ounce, but remains far from the levels at the beginning of the year, unlike stock exchanges and raw materials. And the cryptocurrency are for risk takers: Bitcoin can be worth a million dollars, or it can be worth a dollar: Place your bets, as they say croupier...
Read the Hands of the Economy of 8 May 2021:
- Economy: recovery with the consumption turbo in sight, the virus willing
- Household spending ready to rocket
- Inflation or not? For now she is not scary and will not become "grown"
