An Wednesday, the US Bureau of Labor Statistics reported the highest rate of US consumer price inflation in 40 years. Prices rose by seven percent last December compared to the same period last year. And yet the markets remained calm. At the end of the day, the Dow Jones and the index of the technology exchange Nasdaq were slightly up.
On the one hand, there was calm because inflation had already amounted to 6.8 percent in November and an increase of 0.2 percentage points was not perceived as too dramatic. On the other hand, because one had already expected such a number. One of the most important goods in the financial markets is trust. For example, if central banks give signals that indicate an imminent change in monetary policy, then investors are likely to react less extremely as soon as the signaled event occurs.
The opposite was seen last November, when the Bank of England disappointed expectations by sticking to easy monetary policy following earlier statements by leading central bankers on speculation about a rate hike. As a result, the British pound depreciated sharply.
All eyes are on the US Federal Reserve
Market players are now eagerly awaiting interest rate hikes and the reduction in the US Federal Reserve’s bond portfolio. A large part of the market expects the first measures to be taken in mid-March. However, it is uncertain how much the American central bankers dare. Three or four interest rate hikes can be expected, depending on which observer you believe. This lack of clarity and the question of whether acting too briskly could endanger the recovery of the economy pushed prices down towards the weekend, especially on the Nasdaq.
In Europe, on the other hand, one can count on a steady hand from the European Central Bank (ECB) in 2022. “Compared to the USA, we expect lower economic growth and also less price pressure for the euro zone in 2022. This gives the ECB the leeway to tighten its monetary policy more cautiously than the US Federal Reserve,” comments Weberbank analyst Martin Zurek.
Meanwhile, the reporting season began on Friday, which, along with the central banks, will determine the minds of investors in the coming weeks. The major American bank JP Morgan got off to a slow start with lower profits than in the same period of the previous year. Fund provider Blackrock, on the other hand, reported a record value of $10 trillion in assets under management.