La Financière de l’Echiquier – Faster, higher, stronger – PATRIMOINE24 – All news in wealth management

The Olympic slogan perfectly characterizes the problem currently facing the European Central Bank (ECB).

because faster urgent to curb economic activity to prevent a multi-year overheating of prices from becoming self-sustaining. Higher because after 10 years of low or even negative rates, policy rates reach novice levels for more than ten years. Stronger, finally, because the amplitude of the increases announced in recent months is unprecedented in such short time: 50 basis points in July, then 75 at the September 8 meeting, or +1.25% in two months, well beyond the directives announced last June.

It must be said that the urgency is very real. In August, inflation in the euro zone as a whole reached 9.1% for a year. While some countries have been able to limit the damage by mitigating some of the rise in energy prices with budgetary measures – notably France (6.5%) or Germany (8.8%) – most countries face inflation above 10%. %, even above 20% for the three Baltic countries!

A price shock of such a significant magnitude therefore calls for a remedy to its measure., even if it means deliberately reducing economic activity, as this is one of the sources of inflationary fever. The ECB’s update of its growth and inflation expectations is noteworthy from this perspective: it expects inflation of 5.5% in 2023, above its medium-term target of 2%. Growth in 2023 is expected to be just 0.9%, significantly lower than the 2.1% expected at the start of the summer.

If central banks and governments share the same adversary—inflation—they do not have the same weapons to counter it. If from a social point of view the state’s measures aimed at eliminating the energy shock are admirable, it is more controversial from an economic point of view. By keeping energy prices artificially low, states are deepening already deep deficits and debt. But they also erode some of the impact of monetary policy by supporting household purchasing power and reducing companies’ energy costs and therefore demand. No doubt states are secretly betting that the energy shock is temporary, the mistake that central bankers have been complicit in, considering the rise in inflation inherited from the shock of the health crisis to be temporary. How much longer?

The answer may come from the ECB, as the rising impact on government borrowing rates would defy logic if it were to follow in the footsteps of the US Federal Reserve (FED) by reducing its balance sheet in the coming months. It does not matter » still works in many countries.

The post was completed on 09.09.2022
Clement Inbona, Fund Manager


  1. United States, fog services activities: The release of the ISM Services indicator for August came out at 56.9: the level of expansion is higher and stronger than consensus expectations surveyed by Bloomberg, but in stark contrast to another services survey surveyed by investors: PMI Services. Indeed, it came out at 43.7, a significant level of contraction, revised downward and below consensus expectations. Therefore, it is difficult to see clearly in this sector, whose weight is the most important in the American GDP. To find such a strong gap, we have to go back to the epicenter of the Covid crisis in April 2020, and again, two surveys pointed in the direction of a strong slowdown.

  2. Number of all expectations. The release of US CPI inflation on September 13, 2022 will be the focus of investors. This market compass, especially the “core” version, which excludes the most volatile components, is expected at the consensus (on 09/22/09) at 6.1%, i.e. +0.2% increase compared to the July level. For now, no analyst is considering a downside. If core inflation were to rise, it would reverse a three-month streak of declines and put some more pressure on the Fed to tighten its tone at its September 19 meeting.

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This information and this document do not constitute investment advice, an investment offer or any inducement to act in the financial markets. They are provided from the best sources available to us. The information provided is the result of internal research conducted by the management team in a specific market context; it in no way undertakes La Financière de l’Echiquier and may change over time. The availability of the securities mentioned in the fund’s portfolio, as well as their performance in time, is not guaranteed. Companies’ past results or past stock price performance are not indicative of future results or performance, which may not be stable over time.

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