FRANKFURT (dpa-AFX) – In the third to last stock market week of the year, things could get really exciting again. It’s a central bank week and the signs point to rising interest rates. Both the European Central Bank (ECB), the US Federal Reserve and the Bank of England (BoE) are likely to raise interest rates further given that inflation is still far too high. Not a rosy outlook for stocks.
However, they had a really good run in autumn: From the beginning of October to the end of November, the Dax (DAX 40) and the US leading index Dow had increased by around 20 percent in unison. The main reason for this recovery rally was the expectation on the stock exchanges that the Fed in particular would not tighten the reins as much this Wednesday at the last meeting of the year as at the meetings in previous months.
“Both ECB boss Christine Lagarde as well as Fed boss Jerome Powell will moan about the high inflation,” forecasts currency expert Ulrich Leuchtmann from Commerzbank. Both central banks are likely to raise the key interest rate by 0.5 percentage points and thus less than before. However, expectations for the future are likely to be decisive be inflation, and in this respect there are clear differences: while the financial markets priced in inflation of 2.6 percent for the USA in the next twelve months, be it for the euro zone 4.8 percent.
Not a good omen for shares in the euro zone. They have recently switched from rally to consolidation mode. “The 2700-point rally in just two months took the German stock index the strength it now lacks for a year-end rally,” wrote analyst Jochen Stanzl from broker CMC Markets. Despite the recent recovery, 2022 threatens to become a dreary year for the stock markets. The Dax is currently posting a loss of around ten percent, which would be the weakest year since 2018.
Many observers are also concerned about the situation on the US bond market. Because there government bonds with a term of only two years yield a higher return than ten-year bonds – and the trend is rising. “As a rule, you get higher interest rates for longer-dated bonds than for the so-called short-dated ones. Now it’s the other way around,” writes market strategist Jürgen Molnar, adding: “In the past, an inverse interest rate structure was often the signal of an impending recession.” The market is already speculating on interest rate cuts. “Hopefully we’ll find out what people in Washington think about it,” Molnar said, referring to the Federal Reserve.
The forthcoming US consumer prices in November could cause a stir this Tuesday and thus one day before the Fed meeting. In October, the increase had weakened significantly, fueling the recovery on the stock exchanges. Economist Christoph Balz from Commerzbank expects inflation to fall further in November, which could drop to a good seven percent over the year. The high for the year was more than nine percent. According to the economist, this does not change the fact that inflation is still far too high./bek/jsl/jha/
— By Benjamin Krieger, dpa-AFX —