Chronicle of Eric Sturdza bank rates.
Marchés US: and the winner is ….
By the time you read this column, you will still be able to say with certainty who is president of the United States and at what level the Fed’s key rates are. No point in getting into long chatter about the election results, we don’t know anything about it, no one knows anything about it and it’s 50-50. However, according to the latest rumors, Kamala Harris is going back on track and could pocket a victory that seemed to elude her. In such a scenario, complete with a Congress dominated by Republicans, this would be rather good news for long-term rates. Yesterday afternoon’s bullish flattening seemed to validate such a result after several days of suffering from long-term rates which seemed resigned to a victory for Donald Trump.
We are at the end of the cycles, earnings are starting to enter a zone of turbulence and the Fed is finding itself in deep trouble.
Last weekend was eventful because on Thursday afternoon, after the publication of the Core PCE, we were almost inclined to envisage a status quo from the Fed after a jumbo rate cut that was a little too hasty. Friday, the 12,000 job creations had the effect of a cold shower. We can certainly act like an ostrich with our head in the sand and say that this figure is worthless because it is biased by strikes (Boeing but not only) and by two hurricanes. However, the August and September revisions are not affected by these two arguments. We are at the end of the cycles, earnings are starting to enter a zone of turbulence and the Fed is finding itself in deep trouble. Lower rates by 25bp because the slowdown is taking hold for good? Taking a break because inflation is starting again? Wait for the next FOMC on December 18 once the election results are final?
But where is Germany (and therefore the Eurozone) going?
Until now, grossly simplifying, the euro zone found itself in a much simpler configuration than that of the United States. Inflation was falling sharply to the point of making us fear that it would settle permanently well below the famous 2% and recession was obvious in the “non-PIGS” countries. The markets were ready to imagine an ECB ready to give up its small, timid steps of 25bp to move on to jumbo rate cuts of 50bp. We were more in the consensus, namely 25bp at each meeting bringing us to 3% at the end of the year, 2.5% in March and 2% in June 2025.
In recent days, the situation has evolved. Germany, which remains, whether we like it or not, the benchmark of the zone, experienced growth of +0.2% in Q3. It’s certainly not brilliant, but we can no longer speak of a recession, at least technically. Then, inflation rebounded seriously. The CPI rose from 1.6% to 2% but, more worryingly, the German Core CPI rose from 2.7% to 2.9%, driven by services which rose to 4%. If we add to this the wage demands of IG Metall which is already brandishing the threat of harsh strikes, we say that the equation was perhaps not so simple for the ECB to resolve. Certainly, in terms of the health of the industry, we must consider the VW group’s announcements as a worrying alarm signal, seriously threatening the future growth of the economy. We will therefore have to remain vigilant and see whether this return of inflation is a “transitory” accident (due in particular to food and energy) or something more structural which will complicate the task of Frankfurt’s central bankers. . While we all have our eyes on Washington, let’s remember that uncertainty and volatility are definitely not the prerogative of Americans!
