The euro slips to a 20-year low against the dollar: The European single currency reached $0.9809, a level not seen since December 2002, before recovering to 0.9864. Yesterday the Federal Reserve decided the new high by three-quarters of a point, and expectations for subsequent hikes weigh heavily. The European currency is suffering from the economic effects of the war and the energy crisis.
The European Central Bank, after tightening three-quarters of a point at the beginning of September, “It expects to raise interest rates further in upcoming meetings to curb demand and guard against the risks of a continued increase in inflation expectations.”which “is likely to remain above the target for an extended period of time”.
It can be read in the central bank’s economic bulletin mentioning inflation at 9.1% in August and the upward revision of experts’ forecasts to 8.1% in 2022, 5.5 in 2023 and 2.3 in 2024.” Recent data indicates a significant slowdown in growth in the Eurozone, with the economy expected to stagnate later in the year and into the first quarter of 2023.” It can be read in the Economic Bulletin of the European Central Bank, which notes The SME services index declined in August, “indicating a stagnation in activity”.
According to the European Central Bank, “there are clear signs of a prolonged slowdown in economic activity in the context of rising inflation and ongoing uncertainty related to the war in Ukraine and energy-related trends.” “Indications from the markets are that oil prices will fall in the short term, while wholesale gas prices will remain at unusually high levels.” “Food inflation – and it is ongoing – grew remarkably, from 9.8 to 10.6% between July and August, driven by global prices of food raw materials and increased producer prices in the Eurozone.”
“In light of the deteriorating economic outlook and current inflationary pressures, the resilience of firms is likely to also depend on the continued support provided by economic policies, particularly those provided by budget authorities.” However, the European Central Bank encourages a reversal of “rain” support for the pandemic. Budget support measures aimed at mitigating the impact of energy price increases should be temporary and target the most vulnerable households and firms, in order to reduce the risks of fueling inflationary pressures, improve the efficiency of public spending and maintain debt sustainability.
Markets are betting 225 basis points for further monetary tightening by June, with the deposit rate set by the European Central Bank which will therefore reach 3% from the current 0.75%. Bloomberg writes on the basis of data obtained by cross-referencing swap contracts with the dates of the next meetings of the Central Bank’s board of directors. The massive increase in tightening expected by markets – the ECB is formally debating whether the “ultimate” rate where the ECB intends to stop should be 2% or not – follows yesterday’s Fed decision to raise another 75 basis points. Expectations of more gas prices are also weighing on it after the escalation of the war in Ukraine announced by Putin. Debt sustainability depends “on economic growth” and “the next generation of the European Union plays an important role. It is very important that the growth projects financed through this program be fully pursued and implemented.” This is what Isabel Schnabel, a member of the European Central Bank’s Executive Committee, said in response to a question about Italy’s high debt. In response to a question from German newspaper T-online, Schnabel answered a question about the political rise of the far right in Italy with FdI leader Giorgia Meloni: “We never comment on political developments in individual countries.”
And after eight years, Switzerland says goodbye to negative rates. The central bank decided to raise the maximum rate by 0.75 points (but less than some forecasts betting 100 points) raising the rate to 0.5%. And according to President Thomas Jordan, no further increases are ruled out in the coming months. The Swiss National Bank’s move is in line with the global Fed-led general interest rate hike as the European Central Bank accelerated increases, leaving the Bank of Japan alone with negative interest rates.
Major European stock exchanges look weak Awaiting the release of US stock markets, after an initial shock, after the Federal Reserve increased interest rates by 75 basis points. Positive US futures after a smaller-than-expected rise in jobless claims and awaiting EU consumer confidence. On the Old Continent the best is Milan (+0.4%), followed by London (-0.05%) slightly below average. The weakness of Madrid (-0.25%), is more evident in the decrease in Paris and Frankfurt (both -0.5%). After a weak opening, Wall Street turned negative. The Dow Jones fell 0.40% to 30.066.86 points, the Nasdaq fell 0.83% to 11,126.11 points, and the S&P 500 fell 0.59% to 3765.59 points.
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