After aggressive interest rate hikes in 2022 and 2023, it was expected that the Eurozone could slip into recession at any time. Now, however, macroeconomist Bob Elliot has come up with a thread on X, formerly Twitter, that shows that the European economy may be in much better shape than everyone thinks.
“Perhaps conditions in the eurozone (…) will not worsen at all. Is it possible for them to improve at all? This morning's PMIs (health and economic indicators – 50+ is positive) continue the trend and suggest that the situation is improving. (…) For the Eurozone we see stabilization and a significant increase,” therefore Elliot.
This data supports claims from other analysts who have pointed out that conditions are not deteriorating as quickly as many economists had expected.
In Spain, for example, we are seeing a strengthening of the labor market. We didn't expect that after all the interest rate hikes, did we?
This is another notable development. What we see in the chart below is the interest rate on German government bonds, which fell by 1.20% towards the end of 2023 due to market conditions.
In fact, these are “interest rate cuts” carried out by the market.
How can the market lower interest rates?
This is possible because, for example, aggressive rate cuts are expected before 2024 (which is the case), meaning the market is already “pricing in” these rates and we are already feeling the consequences.
It should come as no surprise that stocks (and Bitcoin) began an aggressive rise at the exact same time interest rates fell. For Bitcoin, this led to a price of $49,000 at the top of the ETF hype and the stock is currently even reaching all-time highs in the US.
The market expects the European Central Bank to cut interest rates again this year by 1.50 percent. Given the current trend in the Bitcoin price, we absolutely need these interest rate cuts.
In addition to the ECB, it would be nice if the American central bank also followed suit with interest rate cuts.
However, it remains to be seen whether the high expectations (ECB interest rate cuts of 1.50 percent) will actually be fulfilled. Given the current inflation figures, there is no reason for the ECB to cut interest rates, right?
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