World stocks are heading for a 1% loss on the week, according to Friday data
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Several developments that have had a significant impact on the state of the global economy recently took place. The first thing to note is that the world stocks were moving towards a 1% loss on the week, according to data recorded earlier today, November 18th. The move came after two-month highs, which came after the US Fed officials warned about the move of the interest rates.
Another thing worth noting is that the dollar and bond yields recently went up following the announcement by James Bullard, the president of the St. Louis Fed. Bullard stated that the interest rates might have to hit a range from 5-5.25%. At the moment, they are at a level of just under 4.00%. He believes that this might be necessary in order to be “sufficiently restrictive” in order to curb inflation.
While the goal is to improve the situation in the long term, the move — if it does come to pass — will be a massive blow to investors who wagered that the rates would see their peak at only 5%. The Fed fund futures quickly sold off, as the chance of the rates going to 5.25% is now more likely than a peak between 4.75% and 5.00%.
Countries’ response to inflation
Pictet Asset Management’s senior multi-asset strategist, Arun Sai, commented on the current situation, noting that the Fed has pushed back against the market narrative and that a pivot should not be expected. According to Sai, the markets are running on fumes, and it will not be long before they move their focus to the real economy’s reaction to increased rates. One expected consequence is the slowdown of the labor market across the country.
Meanwhile, European stocks saw 0.54% gains. After the European Central Bank repeated that it was preparing for the start of the biggest cash withdrawal from the banking system of the eurozone in history, the banks saw a rise of nearly 1%. They are now expected to repay nearly 500 billion EUR in TLTRO loans.
At the same time, Britain’s FTSE saw 0.33% in gains, only a day after Jeremy Hunt, the country’s finance minister, announced a major tax increase that will primarily target the rich. In addition to that, Hunt also noted that the country needs to prepare for serious spending cuts, in order to fight inflation. Now, experts such as the UBS Global Wealth Management’s chief euro zone, Dean Turner, believe that the Bank of England is likely to continue hiking rates, even though the economy is suffering a major slowdown. But even so, he believes that their peak will likely be lower than in the US.