Inflation is finally starting to come down.
Owing to elevated wage growth (6%), inflation is running at a high rate (5%).
However, trend inflation has declined to 3-4% both in the US and in the euro area.
Leading indicators of inflation, such as ISM Prices, Producer Prices, NFIB Price Plans and the quits rate, point to further declines ahead.
This is good news for the stock market. The biggest worry facing the market for a while has been that inflation becomes so persistent that central banks will have to raise interest rates significantly further. The latest data suggest that central banks may soon be able to stop hiking rates.
This is welcome news and a potential catalyst for bank stocks. If interest rates stop increasing, it reduces the odds of a financial crisis happening. This should translate into higher bank share prices over time.
Bankinter was sold, AXA bought.