US GDP Failure, Cowardly ECB and Stock Market Records

29 thg 10, 2021

Yesterday may seem rather strange in terms of the dynamics of prices in the US stock market, although in fact everything was quite logical in light of the events that took place.

The two main events of Thursday - the publication of data on US GDP and the announcement of the results of the ECB meeting - seem to have little to do with each other, but in fact it was their combination that provoked the growth of the US stock market.

The figures for US GDP can be safely called a failure. Although, of course, everything is relative. So, relative to the previous value of 6.7%, the published 2% is a failure. Compared to forecasts of 2.7%, a growth rate of 2% is also, in general, a failure.

A reasonable question arises, why, against the backdrop of disastrous data on the country's GDP, its stock market decided to set new historical highs?

Now it is worth looking in the direction of yesterday's decision by the ECB. The Central Bank of Europe was as "pigeon" as it is possible in the current environment. Recall that most experts agree on the need to tighten monetary policies. Accordingly, the ECB was expected to signal both the curtailment of the quantitative easing program and the possible timing of the rate hike. Instead, the good old ECB returned, which considers inflation to be a temporary phenomenon that will dissipate by itself. And in general, there is no excess of the ECB's target. So what if consumer inflation in the Eurozone is 3.4%, if we calculate the average for some period further in time, then the value will turn out to be less than 2%, which means that there is no excess of the ECB's target, which means nothing needs to be toughened up or changed.

It would seem, what does the US stock market have to do with it? The point is that the FOMC is due to announce its verdict and comments next week. So the markets are worried about whether the Fed will repeat the ECB's rhetoric, especially in light of the extremely weak US GDP figures? In general, this has already happened more than once in the past, and more than a year ago, the new FRS doctrine just presupposes control not over inflation as such, but over its certain average value, and the general public does not need to know the period of averaging. That is, if it wants, the Fed can easily calculate the average for the last year, or two years if it wants, and will get some 1.5% and say - you see, no inflation.

It is clear that this fact is not yet and we need to wait for Wednesday, but yesterday no one wanted to wait - everyone tried to have time to work out a possible scenario. And its development is precisely the growth of the stock market and the decline in the dollar against the background of expectations of the absence of tightening of monetary policy. So everything is logical. The main problem with this logic is the assumption that the Fed will copy the ECB. And if not? When the markets ask this question, we will see the opposite trend.

So do not rush to conclusions and bury the dollar or buy on the US stock market at insanely high prices. Moreover, Apple and Amazon with a very loud crash yesterday failed with their financial results for the third quarter.