FRANKFURT (dpa-AFX) – After a strong first half of the year, renewed interest rate fears have spoiled the start of the second half of the year for the German stock market. The interest rate problem, which has increased dramatically recently, the ongoing concerns about inflation and recession, and the renewed trade conflict between the USA and China are likely to dominate the new stock market week.
After the Dax (DAX 40) rose by an impressive 16 percent in the first six months, a whopping minus of around three and a half percent is announced for the first week of July. With the clear slide below 15,700 points, the Dax opened the door for an extended summer correction, believes capital market strategist Jürgen Molnar from Robomarkets.
More and more experts expect that the market will have to adjust to high key interest rates for a longer period of time. The experts at Credit Suisse do not expect interest rates to fall again before June 2024. After Friday’s US labor market data, which signaled continued solid employment growth and a persistently low unemployment rate with respectable wage increases, the US Federal Reserve should feel confirmed in its stance that it has not already declared the fight against inflation to be over.
Rising wages in the US and the solid employment situation over the past few months are a concern for the Fed as they prop up the high inflation it is fighting. The monetary watchdogs recently made it clear that they want to raise interest rates even further this year after the break in June. The European Central Bank (ECB) recently sent corresponding signals.
The market can come to terms with two US interest rate hikes of 0.25 percentage points each, “anything beyond that would pull the rug out from under its feet,” believes Molnar. However, the decisive question is not whether there will be another interest rate hike, but how long interest rates will stay up. “And there is still a rude awakening in the coming months,” said the market strategist.
According to the market strategists at DJE Kapital, the policy of the central banks is aimed at weakening the economy and achieving a mild recession in order to curb inflation, which is still too high. “Due to the ongoing monetary slowdown in a downturn that is already beginning, however, there is a risk that you will ultimately end up in a recession scenario that is significantly deeper than actually desired.” The inverted yield curves – higher interest rates on short-dated bonds than on long-dated bonds – are a signal of a hard landing for the German and European economy, according to DJE Kapital.
The most important economic indicators in the new week are likely to be the US consumer prices due on Wednesday. The economists at Commerzbank expect headline inflation to fall from 4.0 to 3.1 percent and core inflation from 5.3 to 5.0 percent in June. Nevertheless, they are convinced that the Fed will raise its key interest rate again at the end of July. According to the experts, the data on US consumer confidence in July (Uni Michigan Index) scheduled for Friday should confirm that the mood among US consumers has brightened up surprisingly recently.
In Germany, the ZEW index in particular should be eagerly awaited on Tuesday, for which Commerzbank experts are forecasting a further decline. For the Chinese import figures due on Thursday, they assume a decline of 6 percent compared to the previous year./edh/jsl/he/nas
— By Eduard Holetic, dpa-AFX —