The global economy is going through a complex period marked by a series of challenges. In 2024, it will be operating in an environment marked by a number of uncertainties, linked in particular to the current geopolitical context. Here is an analysis of the macroeconomic situation and the consequences for the monetary policies of the FED and the ECB.

What is the global macroeconomic context?

Geopolitical tensions, exacerbated by the war in Ukraine, rivalries between major powers such as the United States and China, and regional conflicts in the Middle East, are creating a climate of mistrust in the financial markets.

Inflation, which reached historically high levels in 2022-2023, forced central banks to adopt restrictive monetary policies, as described in our previous articles, raising key rates in an attempt to contain price rises. This strategy, which was designed to slow economic growth, eventually led to fears of recession in several major economies, notably in Europe and North America. Today, inflation in Europe is under control, while in the United States it remains high, buoyed by stronger growth.

The Mini Stock Market Crash of 5 August 2024

On 5 August 2024, the world's financial markets were rocked by a mini stock market crash marked by a fall in the major indices. The S&P 500 in the United States lost almost 6%, while the German DAX and the French CAC 40 fell by 5% and 4.8% respectively. The crash was precipitated by a number of converging factors, including a widespread sell-off triggered by multi-factorial fears.

An economic recession in the United States, marked by a rise in US unemployment in July and a fall in job creation, "rattled Wall Street", according to Les Echos. This was confirmed by the intervention of Jerome Powell, Chairman of the US Federal Reserve (Fed), who made it clear that his institution was now less focused on inflation, and more on the other aspect of its mandate, employment. This means that he believes the risk is more of a slowdown in economic activity. This has been confirmed by the US statistics released since then. However, this was only an epiphenomenon. Some of the market's excesses have simply been corrected.

Monetary policies of the FED and ECB

In the face of this turbulence, attention is turning to the two largest central banks, the US Federal Reserve (FED) and the European Central Bank (ECB).

After pursuing an aggressive policy of raising interest rates to combat inflation, the FED has recently adopted a more cautious approach. This summer, it decided to keep rates unchanged at between 5.25% and 5.50%, expressing concern about the secondary effects of its previous hikes on economic growth. However, various indicators are prompting the ECB to suggest a rate cut in the near future. For its part, the ECB has been faced with a similar dilemma. This is why, in June 2024, the ECB had already decided to cut its rates by 0.25 points. The eurozone economy is more fragile than that of the United States, due to its energy dependence and the more direct repercussions of the conflict in Ukraine. The ECB must therefore continue to strike a balance between controlling inflation and supporting growth, a balance that makes it difficult to anticipate its decisions.

As a result, financial markets are becoming increasingly reactive to new information, whether economic, political or company-related, making it difficult to predict short- and medium-term trends. But don't panic: there are even solutions for investing in financial markets that offer capital protection or even a guarantee. Every time the market changes, there are solutions available to you. The financial market professionals at Wealth A7 are here to help you select and manage these financial solutions - contact us!

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