The worst danger of wars is not the damage they cause, but the temptation to assume that it will end as always. With international conflicts, markets have always been alive to this inertia. What leads them to propose actor prices is that this belief may be less valid.
The war in Iran is not an unknown event in itself. What stands out is the economical transmission. The effective fracturing of the Hormuz outlet changed the global flow of oil and gas and caused the biggest energy shock in seven years.
It’s not a sudden increase in raw food, but rather a disruption in supply that forces you to pay more while consuming less. This combination has a direct effect on less visible assets such as bags.
The market of two forces us to behave differently. In the UK we have seen the good suddenly turn to 5% in ten years, levels not seen since the financial crisis.
In the United States and Europe, as their respective central banks light up the next step, the public bond tires, requiring a fusion of risk that takes into account the level of risk aversion, also return to a coordinated form reflecting a change in the perception of inflation risk and, above all, in expectations of monetary policy.
More expensive mortgages, more restrictive loans, more difficult public debt support
Where the market has been discounted by types, now is the time to consider that these shorts may not be connected, or even that the next move is on the high.
Because what is at stake is not the direction of the financial markets, until function that clears the price of money. Over the years, rent absorbs shocks.
At the expense of income, financial conditions are relaxed and the system finds stability. Nowadays it is the opposite. Underneath the tires, the finances are taken care of and the customization translates directly into the real economy. More expensive mortgages, more restrictive loans, more difficult public debt support.
Because of this, monetary policy is not done in sync with what is going on in the economy, which henceforth does not lead to currency problems.
The energy shock surrounding persistent inflation is limiting central banks’ margins. You can’t respond like before without being able to find credibility.
Yes, credibility comes into conflict with growthMonetary policy must be the automatic stabilizer for which the market was created.
The signs are still there and we saw them last week. In the UK, the market is now revealing substantial variations of the types in a complete deterioration of the economic environment. In Europe, the ECB warned of the risk of second-round inflationary effects and left the door open to loosening its stance.
And in the United States, public debate at the second level reflects the same adjustment of expectations. The patron is common. Inflation will affect the response.
When this happens, a good market must be protected. Bags can be dropped quickly and picked up at the same speed. It’s natural. However, when the cost of money is subject to uncertainty, it is limited the ability to respond to one’s own conditions.
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