The second quarter of this year was generally quite calm in the financial markets. The technological boom continued, the growth of the Indian stock market, and in the Eurozone, unlike across the Atlantic, we got an interest rate cut.
The ECB cut interest rates
One of the main highlights of the second quarter of this year, both in the financial markets and in the economy, was without a doubt the decision of the representatives of the European Central Bank to reduce the base and other interest rates, i.e. the start of de facto easing of monetary policy after the previous rapid and aggressive interest rate hikes in order to combat rampant inflation. At the same time, the monetary policy makers of the euro zone decided to reduce the balance sheet of the Central Bank even faster.
Thus, the cost of servicing existing debts has decreased in the Old Continent, which is extremely important for both businesses, households and individual countries, and those who want to take out new credits will be able to do so on more favorable terms. Of course, this is extremely important for fast-growing and high-potential companies.
Meanwhile, across the Atlantic, the representatives of the Federal Reserve Bank (FED) decided to wait during the meetings held during the second quarter, and still did not cut their base interest rate. As if that were not enough, monetary policy makers in this country currently expect that the main interest rate will be cut only once by the end of this year, after three cuts were expected at the end of the first quarter.
The technological boom continues
Investors' money continued to flow into the technology sector during the last quarter, so it is not surprising that out of the three main American stock market indices, which at the same time moved up after a short correction and reached new absolute record levels, it was the Nasdaq that performed best. It is true that the quarterly growth of this index decreased for the second quarter in a row.
There have also been voices warning of a speculative bubble in technology, primarily related to overestimating the impact of artificial intelligence in the real economy. However, we didn't get the bigger correction we've seen for a long time, that is, sell in May and get out, it didn't work this time.
On the other hand, the appreciation of the shares of the representatives of this sector this time is also associated with already improving performance, and not only with future prospects with great potential, as was the case during the previous technological speculative dotcom bubble.
China is being changed to India
Also, the Indian stock market continued to rise, which is receiving real and increasing attention from both foreign and domestic investors. Therefore, it is not surprising that a new all-time record was again achieved there during the last quarter, that is, the capitalization of the stock market of this country exceeded five trillion dollars for the first time in history.
This has allowed the Indian stock market to break into the prestigious group of the world's largest stock markets, which includes Japan and Hong Kong alongside the United States, whose stock market remains the largest in the world, and China. Investors are fascinated by the continuing rapid growth of this country's economy, favorable investment and operating conditions, and continuing huge growth prospects.
It can be said that the growth of the Indian stock market is partly at the expense of China, from whose stock market foreign capital has once again been intensively withdrawn. After rebounding in the first quarter, China's mainland stock market index again recorded a decline in the second quarter, which had previously lasted as many as three quarters in a row.
Main intrigues and questions
As for this quarter, and more specifically about the month of September, there is no doubt that the main intrigue is, first of all, whether the European Central Bank will further reduce its base interest rate, and whether the Fed will finally start easing its monetary policy. Of course, this will depend directly on the latest inflation data and other macroeconomic indicators, which will be awaited and closely watched not only by representatives of Central Banks, but also by investors.
We will also get an answer to the question of whether last quarter's record breaking of new record highs in major stock market indices was just a short-term misleading move before a larger and deeper correction awaits. As always, investors will wait and carefully evaluate the soon-to-be-released performance results of the last quarter of banks and companies, and especially the forecasts announced by their managements.
Author: TI
