𝐈𝐦𝐩𝐚𝐜𝐭 𝐨𝐟 𝐌𝐨𝐧𝐞𝐭𝐚𝐫𝐲 𝐏𝐨𝐥𝐢𝐜𝐲 𝐚𝐧𝐝 𝐓𝐫𝐚𝐝𝐞 𝐓𝐞𝐧𝐬𝐢𝐨𝐧𝐬 𝐨𝐧 𝐭𝐡𝐞 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐌𝐚𝐫𝐤𝐞𝐭
- Filipe Pereira
- Mar 15
- 2 min read
The past few weeks have brought significant economic developments, shaping the future of the global financial market. Between rising interest rates in Europe and increasing trade tensions, investors are staying alert to upcoming market movements.
Rising Interest Rates and Stimulus in Europe
Europe is experiencing a rise in interest rates, driven by an €800 billion stimulus plan primarily focused on the military sector. Additionally, Germany has announced a €500 billion investment over the next 10 years for the same purpose.
The military industry, like the construction industry, has a strong multiplier effect on the economy. The need for debt issuance to finance these projects has led to a significant increase in interest rates. Germany recorded its largest single-day rate hike since 1990, directly impacting bond prices, which are declining due to the interest rate surge.
Outlook for Eurozone Interest Rates
Currently, 10-year interest rates in the eurozone are around 3%, with the possibility of slightly exceeding this level. However, a sharp escalation is not expected, as the European Central Bank has been reducing short-term rates. With Italian 10-year rates already at 4%, a concerning level, any further increase may be limited.
Trade Tensions and the Global Paradigm Shift
Recently, trade disputes have intensified significantly. The United States imposed 25% tariffs on Canadian and European Union products, prompting the EU to retaliate with €26 billion in tariffs against the U.S. The United Kingdom has not yet responded, while China is considering countermeasures against the U.S.
This scenario is reminiscent of the 1970s and 1980s, when trade tensions were at similarly high levels. The U.S., once seen as a pillar of stability, is now viewed as a source of uncertainty.
This shift has led investors to diversify, selling U.S. assets and favoring European and Chinese securities. As a result, the Nasdaq and S&P 500 have performed poorly, whereas European and Chinese markets have seen gains of around 8%.
The Future of the European Economy
Europe continues to show resilience with massive stimulus plans. The current Recovery and Resilience Plan will end in 2026, but discussions about a new economic support program are already underway.
With these expansionist measures, interest rate cuts may not be as significant as predicted a few months ago.
Despite uncertainty, volatility, and the ongoing war in Ukraine, the market presents opportunities. Some substantial corrections may pave the way for strong investments in the coming years, establishing a solid foundation for growth by the end of the year.
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