Divorce is always difficult to accomplish. However, after agreeing on their pace in tightening monetary policy over the past six months, US Federal Reserve Chairman Jerome Powell and his European counterpart and European Central Bank (ECB) President Christine Lagarde are now going their separate ways. The fragile state of the US economy and the surprising resilience of the eurozone could make the European Central Bank the only hawk among the big central banks. Perhaps investors will benefit from diversification in favor of the euro and the shares of European groups. The most important day for those who follow the actions of the ECB was July 21, 2022, when it decided on the first increase in the official value of money since 2011. In doing so, he joined the Fed, which began raising interest rates in March to cap inflation at the 2% target they both set. Each successive meeting of the relevant officials, chaired by Powell and Lagarde, resulted in another increase.

The S&P 500 of the top 500 U.S. stocks has fallen a fifth, including reinvested dividends, in 2022, while the pan-European benchmark Stoxx Europe 600 has lost more than 10%. However, the transatlantic joint march ended last week. Although both heads of their central banks raised interest rates again, the economic scene across the Atlantic was different. After the Fed raised interest rates by 25 basis points, Powell called the recent decline in inflation “most welcome” and hinted at a way to curb rising prices without a recession or a sharp rise in unemployment. The change in sentiment comes as consumer spending fell more in December than at any time in almost two years. And while inflows rose unexpectedly in January, they have slowed over the past six months.

Meanwhile, the ECB raised its deposit rate by 50 basis points, promising to raise the same amount in March and continuing accordingly thereafter. According to Refinitiv, investors now expect eurozone interest rates to reach 3.5% in June and remain at that level until at least February 2024. At the same time, the market is betting that US interest rates will peak at 5%-5.25% in May and begin to decline from November. This discrepancy is partly due to the fact that the two central bankers started from different positions. The ECB not only delayed monetary tightening for four months after the Fed, but was also forced to raise interest rates from the negative levels they reached in 2014. In addition, the OECD estimates that prices in the US will rise by 3.9% this year, compared to up to 6.8% in the eurozone. However, the European economy has also proved remarkably resilient. GDP unexpectedly rose by 0.1% qoq in the last three months of 2022, bringing overall output growth of 3.5% per annum. Falling gas prices, a mild winter and generous government bailouts for households, as well as the rapid opening of China’s key export market, have reduced the chances of a recession in 2023.