2024-09-17 News

$470B Vanishes in a Week! Fed to Hike Rates Next Week, Euro Hikes by 75 Basis Points

Last night's performance of the US stock market appeared quite peculiar.

The latest core PCE price index in the United States has risen again, indicating a rebound in inflation. The Federal Reserve will meet next week to announce its latest interest rate decision. Under these circumstances, the US stock market actually rose by more than 2.5% on Friday.

However, the tech giants that have been driving the US stock market forward have not been performing well recently. With several companies reporting third-quarter earnings that fell short of expectations, the market value of several tech giants has evaporated by more than $470 billion this week.

01, European stock market

The day before, the European Central Bank announced its interest rate decision. This is the third interest rate hike since the first one in July this year, with a 75 basis point increase, bringing the total increase to 200 basis points.

However, inflation in Europe is not ideal and shows a trend of increasing further. Germany announced its CPI for October. Both month-on-month and year-on-year increases continue, with Germany's CPI rising by 10.4% year-on-year in October, a figure higher than expected.

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So overall, last night's closing of the European stock market was relatively normal, with the UK slightly down, and France and Germany up, but with very small gains.

However, looking at the weekly line. The stock markets of France and Germany have been rising for four consecutive weeks.

02, European economy

However, this rise may not be sustainable. On one hand, the Federal Reserve will raise interest rates next week, which is expected to impact global financial markets;On the other hand, Europe's own economic situation is far from ideal, with energy prices still unable to decrease, and persistent high inflation has led to a continuous decline in the purchasing power of ordinary residents.

The natural gas issue that has been troubling Europe seems to have been temporarily resolved, as Europe's natural gas reserves have reached 90%.

Based on this level of calculation, Europe should have no major problems getting through this winter. As a result, both European and American natural gas futures prices have experienced a snowball-like decline.

However, the energy issue should not be optimistically considered resolved. After this winter, Europe still faces the problem of energy shortages, and new supply channels for natural gas and crude oil need to be sought.

The European Central Bank's report provides a set of forecast data, and based on these data, it is inferred that the Eurozone's economy will continue to decline on a quarter-on-quarter basis in the third and fourth quarters of this year, and this downward trend will last at least until the first quarter of next year. Three consecutive quarters of quarter-on-quarter negative growth further confirm that Europe has entered a recession.

03, United States

The situation in the United States is no better than that in Europe, but U.S. stocks experienced a significant increase last night.

However, market analysts generally believe that such an increase may have reached its end, and after the Federal Reserve raises interest rates next week, U.S. stocks may enter a new round of decline.

Moreover, in the medium and long term, the driving force that has supported the continuous rise of U.S. stocks has been lost. The bull market that has lasted for more than a decade was mainly driven by the stock prices of a group of large technology companies. However, the quarterly reports recently released by these companies are not ideal, and their stock prices have fallen.

Microsoft, Google, Amazon, META, and other companies have all released their performance data this week, and without exception, their stock prices have plummeted. Only considering the trading sessions after the release of the performance, the cumulative market value has decreased by $477 billion.Analysts believe that once the momentum from tech giants is lost, the foundation for the bull market in U.S. stocks no longer exists. In fact, over the past years, if the stock price increases of these tech companies are excluded, the actual increase in U.S. stocks has not been significant. On the other hand, the rise in the U.S. stock market is also due to bets on the Federal Reserve's upcoming shift. Currently, the market is predicting that after the interest rate hike in November, the Federal Reserve will reduce the magnitude of interest rate hikes starting in December. However, JPMorgan Chase believes that judging from the current economic data, the Federal Reserve will not shift in the short term and it will be at least the fourth quarter of next year before any change occurs. Once this view forms an expectation, everyone's hopes will turn into disappointment, which will also lead to a new round of selling in U.S. stocks.

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