Among the thousand reasons that conspire to keep the rates – short or long – crushed a levels slightly above zero (and in quite a few cases below zero) is now added the second wave of infections from Covid-19. To the extent that these contagions affect the economy, rates, which are weak when the economy is weak, have another reason to stay where they are.
The possible influence on interest rates is more complex US election results. See i specific polls they will be right (we underline the "if") Biden's victory should boost the economy – and therefore prices and therefore rates. But, it bears repeating in this situation where inflation is and will remain structurally low, all of which means that US inflation will be closer to the 2% target, and even if it does reach that target, the Fed made it clear that there is no mention of raising the guide rate for a long time…
La stability in the last month of long-term rates regarding Waist e T Bond does not extend to btp, whose yields fell sharply to the lowest levels ever recorded. Not only dropped it spread with Bunds, but also the one with i passes Spanish: the level just above 50 in the BTp/Bonos spread is about a quarter of the maximum level reached last year.
What are the reasons of this BTP performance? It is always difficult to speculate on the mysterious psychology of the markets, but if we want to force ourselves into speculation (in the noble sense of the term), we can mention a better political stability, rebound stronger-than-expected economy in the past quarter, a major virus shock resistance (yes, cases are increasing in Italy, but they are increasing even more in the rest of Europe). In recent weeks, articles underlining this have multiplied in the international press the (relative!) Italian successes in the fight against Covid-19.
The yields of btp are now identical to those of the gods T Bond. The famous "risk Italy” has disappeared, otherwise it wouldn't be explained how investors don't ask for a premium to hold BTPs compared to T-Bonds. Unless they expect a dollar decline…
About dollar, this, since the beginning of the year, it depreciated by about 5% against the euro. The relative strength of the two economic areas should have suggested an appreciation, not a depreciation, but another variable, traditionally important for exchange rates, got in the way: the differential (T-Bond minus Bund) between i real long-term rates (deflated with inflation core) it has almost zeroed, from a level of around 170 basis points at the beginning of the year, thanks to the fall in the German inflation rate, which weighed down real rates. Looking ahead, it is difficult to predict, given that what will happen depends on variables that are outside the economists' toolbox: viruses and the US election.
The long vacation of the Chinese markets, which have just reopened, has been good for him yuan, which jumped to 6,71 against the dollar (it was 6,79 before the holiday). By now, the appreciation compared to 7,17 at the end of May has reached 6 percent and more.
In addition to the yuan, the Chinese stock market has also risen: i stock prices in China they are the highest among the countries that are found to have exceeded the pre-Covid maximum. Both the strength of the Chinese currency and that of the Shanghai Stock Exchange they depend on the economy: the most recent OECD forecasts give, at the end of 2021, a level of real American GDP roughly equal to that of 2019, but a level of Chinese GDP approximately 10% higher.
And we come, starting from Shanghai, at other Bags: the correction which seemed to have started last month (in the jargon of the markets, a correction, to be worthy of the name, must be at least 10%) was soon melted like mist in the sun. Which brings us to the usual dilemma, reported for a long time, and more and more current: the discrepancy between Wall Street and Main Street, between the excellent health of share prices and the distress of the poor bastards who are fighting the virus and the crisis.
In short, the financial markets ignore the first, second or third waves and look down on the rest of the economy. At the beginning, had behaved correctly, in the sense that, when the pandemic broke out, there was a sharp fall.
How do you compare the performance of the markets with what happened after the Great Recession? Then, taking – one for all – the path of the US Stock Exchange (S&P500), the market suffered for 15 months, and, between the high before the crisis and the low reached in February 2009, the fall was 53%. Then it took over five years to achieve, in March 2013, the pre-crisis level. And with the Great lockdown? The sharp fall above was only 29%, from the January 2020 high to the April low. Then the Stock Exchange he rehearsed cheerfully, in May, the previous high, and has remained above that level ever since. And all this despite the fact that then (2009) the American economy fell by 2,5%, while for this year the latest forecasts give a -3,8%. The only explanation lies in the fact that stock markets must expect a strong recovery in earnings in the years to come.
In fact, i historical comparisons they say that in the long run the class of asset more profitable were the shares. So why bother? If you invest for the long to medium term, everything will be fine. Stocks will continue to have the wind in their sails, Qe's money has to go somewhere, and the stumbles from now on (let's forget those five years of woes after the Great Recession, when economic policies weren't as generous as they are now) will only be short and miserable. Of course, every hope has its exceptions (the Nikkei, which today stands at 23, is a bit far from the 39 of 31 years ago – end of 1989). But let's not lose heart. Wishes.
