30.08.2022 – Europe could lurch into crisis – and the EuroStoxx 50 right along with it. The old continent is facing some epoch-making tests. And presumably in the midst of the looming recession, the European Central Bank is launching a restrictive monetary policy. This is another lesson from the symposium in Jackson Hole last weekend.

The EuroStoxx 50 – shown here in the daily chart – had recently tended to benefit from the weak euro. This makes European goods cheaper abroad. But this could soon be over.

 

Source: Bernstein Bank GmbH

 

Because the European Central Bank is probably planning a hefty interest rate hike – which should cap inflation, but not the rise in energy prices. And it will also cut demand in the middle of a looming recession. For example, in the construction sector or in retail.

Jumbo Move

For example, Bloomberg reported after the Jackson Hole symposium that a large minority of decision-makers within the ECB are ready for a big 75 basis point rate move. Thus, a “jumbo move” is quite conceivable to curb high inflation. In other words, as the Federal Reserve demonstrates determination to tighten, Europe can no longer hesitate. This is because the weak euro is importing inflation into Euroland via all imports from grain to energy. Inflation in the euro area had risen to a new record of 8.9 percent in July- more than four times the target of 2.0 percent.

Big interest rate move ahead

Reuters added that on Saturday, leading European central bankers had spoken accordingly at the Monetary Policy Symposium in Jackson Hole. Both ECB Director Isabel Schnabel and the central bank chiefs of France and Latvia, Francois Villeroy de Galhau and Martins Kazaks, had advocated significant rate hikes to combat runaway inflation. Kazaks, for example, put 50 to 75 basis points into play. He added that the money market had already priced in 67 percent of a 75 basis point rate hike in Euroland. Before Jackson Hole, the probability of such a move was only 24 percent.

Threats everywhere

It is not only monetary policy that threatens the turnover of European companies. The middle class has been expropriated for years by the European Central Bank’s zero interest rate, which is just now culminating in inflation. Purchasing power is also threatened by politics: On the one hand, there is the screwed-up energy transition, which pushed prices up even before the Ukraine war. Further, supply shocks from the policy response to Corona. The citizens, who are already being hammered by high taxes and social security contributions, receive little or nothing in return from politics: imported crime, intolerable conditions in many schools.

One believe, it ferments in Euroland. In France, high-ranking former generals warned against intervention some time ago. In Germany, the deployment of the Bundeswehr at home is being discussed. In short, we are curious to see whether Europe is in for a hot autumn. For example, a blackout on cold days. With consequences for the stock market. Bernstein Bank keeps an eye on the market for you.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.