A financial trader in the currency market, this Friday in Seoul (South Korea) .JUNG YEON-JE / AFP
The mere expectation that inflation enters the scene, a novelty after years of stable prices — if not directly downward — are beginning to upset the balance in financial markets on both sides of the Atlantic.
Wall Street suffered its worst day in almost a month on Thursday and the second biggest drop so far this year after the benchmark for the global debt market, the US 10-year bond, surpassed the 1.5% barrier of profitability for the first time since the start of the pandemic.
The reason: the peal of the inflation drums, a variable that more and more analysis houses place on the medium-term horizon, and that threatens to add a point of spice on some central banks paid at zero interest rates and purchase outrageous debt to avoid greater evils.
International trade leaves the crisis behind
The British de-escalation plan boosts tourism companies on the stock market
The warning voices about inflation were transferred to other indices.
The Vix, which measures the volatility of US financial markets, also shot up on Thursday, a day in which the most affected stocks were technology, a true star of the trading floors in recent months: the Nasdaq dropped more than 3 , 5% compared to the decrease of less than 2.5% in the general index.
And the red numbers have moved this Friday to the Asian stock markets - the Japanese Nikkei fell 4%;
Hong Kong left 3.5% - and Europeans.
The exception in this last group was the Spanish Ibex 35, which at noon struggled not to fall into negative territory.
The dominoes of the markets are connected by several threads that are usually invisible, but very evident when any of the pieces changes position slightly.
The one that unites the profitability of the public debt and the Stock Exchanges is one of the clearest.
When, as now, inflation expectations rise, interest on bonds rises in expectation that benchmark interest rates end up reflecting it sooner rather than later.
In parallel, the attractiveness of low equities: why assume a greater share of risk, many investors think these days, if an almost risk-free asset begins to yield more or less acceptable returns.
The Stock Market does not have to resist higher inflation worse than fixed income: in fact, in the long term its ability to withstand the inflationary bite is usually greater.
But in the most immediate, what usually happens is a transfer from naturally more volatile assets (company stocks) to theoretically risk-free ones (such as US bonds or those of eurozone countries, which are backed by banks. central).
Even in a market de facto intervened by central banks, which are constantly pumping liquidity to allow states to finance themselves at rates even lower than before the pandemic, the drums of inflation have been felt strongly both in the stock markets. bonds, as in some Stock Exchanges that observe the greatest collapse of GDP in modern history from the privileged vantage point that supposes to follow - as if the real economy were not with them - near historical highs.
Again, with the exception of the Ibex and some other selective laggards from the Old Continent.
The Fed denies the largest
The clear commitment of the president of the United States Federal Reserve, Jerome Powell, to maintain the monetary expansion without limit as long as necessary and his forcefulness at the time of denying the inflationary chants - which rest, says the Fed, on transitory factors, such as the multibillion-dollar stimulus plans themselves, rising oil prices, or bottlenecks in some supply chains — have not been enough to completely silence fears.
“The susceptibility of stocks to interest rates can be key.
The main question for the future is whether the yield of long-term US bonds can jeopardize the frenzied advance of the stock markets, "says Axel Botte, analyst at the manager Natixis Investment Managers, in a note for clients.
Some factors reinforce the denial of the US central bank about inflationary fears that have gone from zero to 100 in record time.
While we wait for the recovery to gain traction from the heat of the vaccines, the general weakness of employment and the very little upward pressure on wages lowers the alarms.
“The reality is that, although inflation will rise in the second quarter, it is not likely that this rise will continue, affect consumers and, ultimately, change the course of the policy that central banks are following”, denies Paul Donovan, chief economist at investment bank UBS, one of the biggest players in the financial world.
The outcome of this debate depends on the evolution of the markets in the coming weeks.