Fidelity International

Fidelity International reacts to yesterday's ECB and Fed meetings

17 June 2022

Anna Stupnytska (fotografia em anexo), Global Economist na Fidelity International, deixa o seguinte comentário após a reunião de ontem do European Central Bank (Banco Central Europeu) - "The ECB put is alive and well":

"At today's emergency meeting, the ECB decided to activate the PEPP reinvestment flexibility and to accelerate progress on an anti-fragmentation tool, providing no further detail on the decisions. While the ECB has clearly been determined to use existing tools for spread management, reinforced in recent communications by President Lagarde and Isabel Schnabel, market action over the past few days has forced a small course correction. By signalling its readiness to act, the ECB is looking to calm the market, hoping this will provide a sufficient dose of medicine and help them avoid the full bazooka.

"The ECB seems to have been keen to allow some risk premium to be priced into spreads recently, raising the tolerance threshold in the pandemic aftermath. Whether the PEPP reinvestments indeed turn out to be sufficient to prevent fragmentation depends, first and foremost, on the speed of the moves. It seems inevitable, however, given examples of previous stress episodes and ECB's reaction function, that markets will continue testing ECB's resolve until a new tool is launched - whether it will end up being used or not. Investors have been keen to know if the ECB put is still there - today we got a preview - it's alive and well."

Salman Ahmed (fotografia em anexo), Global Head of Macro & Strategic Asset Allocation, deixa o seguinte comentário após a reunião de ontem do Fed:

"At today’s FOMC meeting, the Fed hiked rates by another 75bp thus delivering on the hints that hit the market this week.

"We continue to think that the ongoing aggressive tightening in financial conditions (which is significantly higher than 2013 and 2018 given higher inflation) will likely to lead a serious and sharp slowdown in growth in coming months. We think a lot of the hawkishness the Fed is displaying right now is already priced in and interest rate sensitive sectors such as housing are likely to feel the pressure in a sustained way. Moreover, we are already seeing signs of consumer weakness as the collapsing confidence we have been picking up through our trackers is turning into hard data (for example, the latest retail sales print). Lastly, given very high debt in the system, there is a limit to how much further real rates can move up. We are already seeing debt financed balance sheet issues playing a big role in shaping ECB policy, which is now likely to do hiking alongside some version of QE going forward in order to keep financial stability intact in the euro area.

"We remain cautious with underweights in equities and credit. We are also underweight in US versus other DM countries in fixed income. As we pass through this phase of strong hawkishness, we think this set-up of views makes sense. Already, we think that credit markets remain vulnerable given the scope for a serious slowdown and recession the current Fed induced tightening can precipitate. However, we also think we are nearing the point where damage to growth which is in the pipe-line will start to dominate inflation as the primary concern for both policy makers and markets."

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