The Ibex 35 takes a pause within an upward trendThe IBEX 35 remains flat, with mixed performance among the selective stocks. The most bearish companies are those negatively affected by interest rate cuts, such as banks, while construction, real estate, and utilities, which benefit from lower rates, rose today after:
Several ECB members advocate for another interest rate cut next week after having reduced them twice this year, and financial markets almost certainly expect a cut to the deposit rate to 3.5% on October 17.
The French central bank chief, François Villeroy: the cut is likely, and it will not be the last one, depending on how inflation evolves.
Economic weakness: The economy has been stagnating, the labor market is weakening, wage growth is slowing down, and inflation has fallen faster than the ECB had predicted.
Market expectations: Investors expect the ECB’s deposit rate to fall to 3% by the end of 2023 and to 2% by the end of 2025, which is considered the neutral rate, a level that neither stimulates nor slows economic growth.
Additionally, investors remain cautious due to global uncertainty and decisions from the Fed.
Investors are waiting for the minutes from the Federal Reserve (Fed) meeting to get hints about interest rate easing in the U.S. The market estimates a 98% probability of a 25 basis point cut at the next meeting.
U.S. inflation data (Thursday) and the producer price index (Friday) will be crucial.
Uncertainty in the U.S.: Recent employment data and wage inflation have raised doubts about Federal Reserve rate cuts, strengthening the dollar and increasing bond yields.
China and the Middle East: Market correction in China and geopolitical tensions in the Middle East are affecting oil price stability and adding more pressure to international markets.
However, the IBEX 35 has an upward target activated by breaking out of a lateral range up to 12,413 points, a scenario which, in my opinion, is the most likely to materialize in the medium term.
Sergio Ávila
Analista senior de IG
