Is it time to fasten your seatbelts? Last week definitely resembled an exhilarating rollercoaster ride amid financial uncertainties. Investors had their hands full trying to navigate the shifting sentiments and macroeconomic data that left no illusions: markets must face the reality of inflation.
The week started quietly, without major events, but as is often the case, the calm was only superficial. Everyone was waiting for Wednesday's CPI inflation data from the USA, which was expected to reveal how much prices had soared. Indeed, the m/m CPI at 0.5% and the y/y CPI at 4.2% left no illusions – inflation is not going to relent. It was like an alarm bell for investors, indicating the need to rethink strategies.
Wednesday brought inflation data in line with forecasts, which may have provided some short-term relief. The following day heightened tensions as the European Central Bank decided to raise the main refinancing rate to 2.40%. This decision was in line with expectations but did not alleviate concerns about future central bank moves. Investors began to wonder if this was just the beginning of a rate hike cycle.
Friday's data on the UK's economic growth completed the week's picture. The m/m GDP decline of 0.1% revealed that inflation is not the only issue, but also an economic slowdown that is starting to take shape on the horizon. It was like a bucket of cold water for those who had hoped for a quick recovery.
What is the moral of this? In the coming weeks, markets will have to balance between inflationary turmoil and concerns about economic slowdown. Market sentiment, as expressed by the Fear & Greed index, has fallen to a level of 34, indicating growing caution. Investors are anxiously awaiting next week's FOMC meeting. And over the weekend, as always, we can expect cryptocurrencies to behave independently of traditional markets.
