It is a big air gap that the markets have just passed during yesterday’s session, with a 2% drop in the CAC 40, and a more measured withdrawal for the American indices, but all the same, we do not We are more used to declines as the markets have been rising for a big year with breathtaking performances.
So what happened?
No one actually knows exactly.
There are concerns related to the Delta variant that the markets have not taken into account since stock exchanges around the world are taking into account an end to the health crisis thanks to vaccination. This is what they have been promoting for a year and the announcement of vaccines that “work”.
There is also the announcement by the Japanese that the Olympics will be held without spectators and in stadiums that will be empty.
Finally, there is also this story of “minutes” of the FED. The minutes are the “notes” taken during a meeting, and the FED is the American central bank. Here is the title of this article from Capital magazine. Source here.
Fed leaders surprised by soaring US inflation
“Faced with the new abnormally high inflation figures, the US Federal Reserve has revealed its astonishment. But this scenario reveals several unknowns. Members of the US Central Bank’s Monetary and Financial Committee were surprised at the speed and scale of the inflation surge associated with the reopening of the US economy, but they disagree on the likely duration of the peak. inflationary. In the report of their last meeting of June 15 and 16 – the famous “Minutes” -, the Federal Reserve (Fed) underlines that “the participants noted that the real rise in inflation was greater than expected, at 3.6% in April, according to the PCE index ”.
They attribute this “surprise acceleration” to the increase in supply constraints that are stronger than expected in April and to a greater increase in consumer demand. But members disagree on how long the peak is likely to last, with “several” members expecting supply chain limitations and shortages until next year, while others noted that average inflation was broadly stable, below 2%, the ideal rate targeted by the Fed.
It is only the FED, the ECB and all the “nexperts” who are surprised, because, from you to me, it has been a long time since I announced this inflationary surge which was foreseeable from the start of the health crisis. if only because of the degradation of productivity linked to disruptions.
There are also shortages. Shortages are always only partially resolved by increasing prices. When there isn’t enough for everyone, whoever wants it just has to pay. This is a phenomenon known as “price adjustment”.
The little phrase that seems to set the powder on fire is therefore this one.
“This uncertainty also weighs on the asset buyback policy. “Several participants mentioned that they expected the conditions to start reducing the pace of asset purchases to be met a little earlier than expected at previous meetings, in light of the latest economic data. “, But” some “wish to wait for more indicators” in the coming months before reaching a conclusion “.
So what to remember from these minutes?
That the FED is gradually getting people used to higher inflation, but we do not know if it will be really sustainable, so we will hasten slowly to fight it.
In short, the markets are undoubtedly worried about this inflation story, because from you to me, we have so much debt that if the FED increases the rates to 3%, the whole financial system jumps.
No, I would be much more worried about the shortages that are blocking factories and economic recovery, because if the shortages last and take hold, it will be a major drag on economic growth, and I can tell you that the markets, have not at all, but then not at all taken into account a scenario which, without being black, would be gray because they only “pricent” the resumption and the end of the health crisis. However, we not only have new variants, a crisis that will not end, and shortages that severely handicap the industry and several economic sectors.
In a normal world the markets would shake less, but they will not realize it until they can no longer do their shopping!
It is already too late, but all is not lost.
Prepare yourselves !