“Inflation will continue to be a problem for the ECB”

Macroeconomic aspects are once again capturing investor attention this week with the release of U.S. inflation data, which reached 2.9% in December. The underlying rate, which excludes energy and food prices, stood at 3.2%.

"The number that comes after the decimal point isn’t the most important thing for investors. What matters are other added issues, like the underlying rate. I’m also somewhat concerned about confirming the trend we’ve been seeing for a few weeks now, which shows prices forecast to rise sharply in the United States," says Alberto Matellán, chief economist at MAPFRE Inversión.

Last week also saw the release of eurozone inflation for December, which came in at 2.4%, while the underlying rate remained stable for the fourth consecutive month at 2.7%. The services component rose the most (4%), followed by processed food, alcohol and tobacco, which was up by 2.9%.

"The 2% objective is always complicated. Furthermore, the nuance of European inflation is that it’s always more dependent on the outside world than that of the United States. Rising prices will continue to be a problem for the ECB. However, although the objective is difficult to achieve, it doesn’t mean that the European Central Bank (ECB) shouldn’t lower rates," he said.

Germany released its 2024 GDP, confirming a second year in recession with a contraction of 0.2%. Matellán explains that, in Germany, and across Europe in general, there are two types of problems: one structural and another more temporary. "The temporary aspect could improve - we might see some surprisingly positive data. But structural factors are more complicated and require enormous changes," he says.

As such, the chief economist at MAPFRE Inversión believes that a rate cut by the ECB may be precipitous, although this may probably occur at its next meeting due to the market context.

Investors are also awaiting the publication of corporate earnings, which are expected to be good for both Europe and the United States. Matellán insists that future guidance counts for more than what companies have achieved in the last three months. By sector, banks should continue to deliver good news, in that they could benefit from a surprise in European macro data and lower-than-expected rate cuts.

The importance of analyzing each company in depth

The increase in the cost of financing in debt markets could deter some investors, but Matellán emphasizes the importance of analyzing each company in depth. “The fact that the cost of financing increases is obviously not a good thing, but it doesn’t rule out investing in a given company if the analysis stacks up,” he said.