To old heights? Or just a break on the way to new lows? The opinions in the market about the upcoming stock exchange week are different. With a rise in the Dax (DAX) of around 300 points last week, the stabilization can be seen, the index had plummeted in the three weeks before by almost 1,500 points. This has been the hottest retreat for two years.
“After the stock markets have been shaken up a bit in the weeks before, investors dared to buy again”, Claudia Windt from Helaba summarizes the mixed situation. The analyst, however, does not believe in an end to the price losses. Their trigger was inflationary concerns and tendencies of overheating in the US economy. However, these real warning signals would be “swept aside and even interpreted as expressing a strong economy”.
On Wednesday, investors are likely to watch the US Federal Reserve’s assessment of the current situation. After all, the Fed is the first of the major central banks that has embarked on a somewhat more restrictive course of monetary policy. On the capital markets, slightly more than three rate hikes are currently priced into the US this year, BayernLB notes. “The consensus of the economists expects a total of four interest rate cuts this year”.
However, rising interest rates could spoil the party on the stock markets. Because bonds gain in attractiveness with higher returns in relation to shares. Increasing market interest rates also make the financing of companies more expensive, which in turn depresses their profitability. “Higher interest rate expectations seem to frighten investors,” says strategist Craig Erlam of broker Oanda.
The aim of the central banks must be “gallant” to emerge from the policy of low interest rates, without “plunging the bond markets into chaos,” wrote market expert Daniel Saurenz of Feingold Research. Above all, the Fed faces the most difficult task for many years. Their decisions influenced real estate just as much as stocks and bonds. “Almost everything depends on the interest rate”.
Strategist Albert Edwards from the French rule bank Societe Generale (PA: SOGN) throws in a market comment the question on what level should the yield on ten-year US bonds to rise to put the stock markets under pressure – and answered them himself: “About 2 ’85 percent seem to be enough to dump stocks’. The rise in US bonds above this level triggered the sell-off on the stock markets at the beginning of the month.
The reason for this is above all the strategist’s “grotesque timing of the tax incentives of US President Trump”. In a period of already rising interest rates, sharply rising US debt will increase pressure on the Fed to tighten interest rates even faster. However, this could even lead to a collapse in the financial markets in the US, warned Edwards, who has been one of the critical observers of central bank monetary policy for years.