May 22, 2022

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European stock markets recorded their biggest decline in a month on fear of withdrawal of stimulus

European stock markets recorded their biggest decline in a month on fear of withdrawal of stimulus

European stock markets this Thursday recorded their biggest decline in the last month due to fear of a… Withdraw cash incentives earlier than expected.

specific, Euro Stoxx 50 Index is down 1.5%; Britain’s FTSE 100 lost 1.6%. The Paris CAC 40 Index is down 2.1%. Germany’s DAX index fell 1.2 percent. The IBEX 35 Index fell 0.88 percent; Britain’s FTSE Mib Index lost 1.5 per cent.

These setbacks occurred a day after the US Federal Reserve published the minutes of its latest meeting, where there is growing support within the institution to start “tapping” (the gradual withdrawal of economic stimulus).

Specifically, the market fears it The Fed will start reducing its bond program this year.

US stock markets also fear a withdrawal of stimulus

the EastI’m really scared caused to strong Downward momentum in US indices yesterday, where the Dow Jones lost more than 1 percent and closed below 35,000 points, while the Standard & Poor’s 500 Index closed at 4,400 points after falling 1.07 percent.

Also, forAsian bags They also developed this fear of a possible change in the course of the Federal Reserve, So that Japan’s Nikkei index fell 1.10 percent, dropping more than 300 points to 27,281 points. While the Hang Seng Index fell 2.42 percent, which means a loss of more than 600 points to 25,247 points.

In any case, Link Securities experts interpreted the content of the Fed minutes in a less worrisome way, considering that it does not contribute anything new, other than referring to the division within the institution on the start date of the stimulus withdrawal.

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Fear or profit?

“We don’t think the content of the minutes, despite their assertion that there is already talk within the FOMC to start withdrawing the stimulus, will ever change the calendar managed by the markets. This is why we attribute the declines in the indices to profit-taking and the fact that many stocks in Overbought territory after the recent spikes it has seen is more related to the content of the minutes themselves. In this sense, it is worth highlighting the tepid reaction of the bond market to its publication,” they point out.

in this time, Investors discount that the Fed will not formally announce the start of reducing secondary market asset purchases, currently amounting to $120,000 million per month between sovereign and mortgage-backed securities, until the November meeting. And that the process will start either at the end of this year or at the beginning of 2022.

Moreover, the market does not expect increases in official interest rates until the above-mentioned asset purchase is completed.

In connection with this, on Thursday the market will suspend applications for weekly unemployment benefits, an indicator that the Federal Reserve pays a lot of attention because the withdrawal of monetary stimulus is subject to improvement in the labor market.