After months warming up in the band, during the break he enters Kevin Warsh replacing Jerome Powell to face the second part (I got carried away by the World Cup theme)
Chronicle of the first half, in the 1st minute of the match, Donald made a tough tackle on Nicolás and he had to leave the field of play in a helicopter. In the 15th minute, a lightning attack seemed like it was going to leave the match resolved quickly, however, the application of a defensive variant called Persian Catenaccio has left the game completely stuck and as the minutes go by and Donald’s team is running out of time. While in the stadium there are nerves because the supply of sausages is running out in the stadium bars and their price may skyrocket, although it seems that at the last minute these have begun to arrive, which has conveyed peace of mind, it will be possible to have dinner in case of extra time and penalties.
Excuse this World Cup-themed hesitation, it will make reading somewhat more pleasant than the more usual serious nature with which we will continue.
I imagine that the reader will have been able to grasp the subtle (or not so subtle) parallel with reality, but the conflict in Iran has placed inflation above 4% in the US and 3% in the euro zone, initiating a potential cycle of interest rate increases, making this the main market narrative, whether the cycle of rising rates will be more structural or, on the contrary, it will be a rapid rebound.
The good thing, the business results are hat trick in hat trick, showing great strength and being the main reason why the stock markets are at their highest, mainly in the US, in Europe there is a certain slowdown and its growth is still far below that of North American companies.
What unknowns does the second part of the year hold for us? Will inflation allow the ECB to stop raising rates and the FED to refrain from doing so? It is the same as wondering if this inflation is temporary or will remain. Will the corporate earnings cycle remain strong and continue to be the main driver of the markets? Many of these questions depend directly or indirectly on normalizing transit in the Strait of Hormuz.
Finally, we look at the brand new president of the FED, Mr. Kevin Warsh, Although it has been put in place by the current administration, for the moment, it takes a conservative stance with respect to interest rates, although it could not do anything else. If it had lowered rates with inflation rising above 4%, it could have caused an overheating that would have ended sooner rather than later in a hard landing of its economy and, above all, it would have caused a crisis of confidence in the financial markets, questioning the independence of the FED, and even if it had lowered rates, there would have been a flight from US bonds that would make the average rates and long ones will shoot up dangerously. Mr. Warsh does not have it easy, his boss is relentless, but the markets are even more so and he must maintain a certain economic orthodoxy.
A very intense second half awaits us and possibly the VAR will have to intervene on multiple occasions, but these are times that will be studied in the economics faculties of the future.
Jorge Martret
Investment Director – NORZ Patrimonia