The inflation crisis unleashes a great earthquake in the world stock market and debt

Yesterday, a shock of enormous dimensions, from Asia to the United States, passing through Europe, shook the electronic parquet floors of the whole world. The global financial markets confirmed that what began last Friday, when Wall Street dropped 3% after learning that inflation in the United States is at 8.6%, was just the appetizer. “There is a lot of uncertainty, less growth and more inflation combined with the concern that the central banks will hit the brakes quite hard,” Elwin de Groot, a market economist at Rabobank, told the Bloomberg agency yesterday. There will be more, much more in the coming days, weeks and months because the existing imbalances need very powerful remedies that are not exempt from extremely high side effects.

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Lalo Augustine

We must be cured of inflation, an economic phenomenon that is tolerable when it is controlled but terribly harmful when it gets out of control, as it is now. The United States, after the greatest expansionary period in its history, after having inflated its financial assets – stock market, debt and dollar – to the extreme and looking the other way, is waiting expectantly for the two-day meeting that the Federal Reserve begins today.

Jerome Powell, the president, and his team of governors are expected to raise interest rates tomorrow by 50 or 75 basis points – 0.5% or 0.75% – to start slowing down the economy and stop the inflationary spiral. Waiting for the confirmation of this and further increases, the hedge funds insurers, banks and the millions of managers who trade in the debt market have activated a process of massive sale – sell off in the jargon – which is sinking the price of the bonds and shooting up their profitability, which moves in the opposite direction.

The long or very long-term debt of the US Treasury has been increasing its yield on the market for months, with all bonds above 3%. Shorter-maturity titles, such as six-month bills, where investors who buy now already take home 2%, also soared yesterday.

There is fear of a recession among investors, who are leaving the riskiest assets with an avalanche of massive sales

Rates are going to rise a lot and that makes public debt more expensive and makes life difficult for companies, many of them tremendously leveraged. For this reason, the stock markets discount that companies will have higher financial costs and lower profits and transfer this reality to the share price.

Wall Street sets the tone. And what has been happening for months and is now reflected in sharp falls in the stock markets is nothing more than the end of the cycle. Yesterday, the S&P 500 index, the most representative of the American stock market, entered bearish territory, accumulating a drop of more than 20% from its previous maximum, in January. Thus, it is added to the Nasdaq, which has lost 32% since November, while the Dow Jones is approaching, with around 16% drop since the beginning of the year.

In Europe, with its own nuances, the problems are not so different. Inflation in the eurozone is at 8.1% and, in an interconnected world, the central bank’s response must be along the same lines, although the times and intensity differ, as is the case. Even so, the market expects rate hikes and difficulties in the weak or more indebted. Yesterday, the collapse was brutal and was primed in the debt of the peripheral countries of the euro to later permeate absolutely everything.

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Piergiorgio M. Sandri


The profitability of the Italian debt to ten years went up to 4%. The Spanish, which less than two years ago traded in negative, climbed to 3%. The risk premiums of one and the other country – an indicator that measures the differential required for financing compared to Germany – rose to 136 and 250 points, respectively. The fear of a sovereign debt crisis returns and the stock markets accused him of this.

The risk premiums of the countries on the periphery of the euro, such as Italy and Spain, skyrocket

The Ibex lost 2.5% and accumulates a decline of 7.5% in the last three sessions. Meliá Hotels was the worst yesterday, with a drop of almost 9%. But the one that suffers the most these days, in the Spanish stock market and abroad, is the bank. Bankinter and Banc Sabadell fell around 4% and BBVA and Santander, a few tenths less. Cellnex and Colonial fell by more than 6% due to the new interest rate environment. In the European stock markets, like here, the punishment is merciless with the financial entities and also with the automobile, the services related to leisure or travel and, in general, with the companies with a lot of debt. Soon the adjustments will begin.

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