09/08/2019 - Markets: Monthly Commentary Juli


Central banks have delivered - and disappointed

As expected, the US Federal Reserve lowered key interest rates by 25 basis points for the first time in ten years, and the ECB was thinking loudly about low interest rates and a possible bond purchase program. But market participants had expected more.

The international stock markets performed mixed in July. In Europe around half of the stock markets recorded negative results, including the German stock index, which fell -1.69%. The broad European stock index Stoxx Europe 600, on the other hand, showed a slight plus in height of 0.23%. In the USA, the S&P 500 index rose 3.42% to a new all-time high while the Hang Seng index (Hong Kong) dropped -0.88%. The global stock index MSCI World recorded a plus of 2.51% in July - all index figures on a euro basis.

There were positive monetary signals for the equity markets in July. The European Central Bank announced that it would leave key interest rates at 0% or possibly lower them further, and showed itself ready for a new bond purchase program. A good argument for this was the core inflation rate (excluding energy and food which continued to fall (0.9% after 1.1% previous month), well below the ECB's 2% target. However, the ECB considered the risk of recession in the euro zone as low. In the US the Federal Reserve lowered key interest rates for the first time in ten years by 25 basis points to a range of 2.00% to 2.25% as widely expected by the markets. However the Fed disagreed with expectations of further planned rate cuts and stressed its willingness to support the US economy if necessary.

However US economic data proved to be robust. Consumer spending rose, retail sales grew as well as industrial orders, new jobs were created and wages rose. Above all, however, the debt ceiling was raised once again in order to adopt a regular national budget.

In addition, the resumption of talks in the trade conflict between the US and China had a positive effect on the market sentiment. The US initially suspended the planned introduction of additional tariffs. However, US President Trump warned China against stalling tactics and currency manipulation. Merger and acquisition activities on both sides of the Atlantic also provided impetus for the stock markets.

On the other hand, the vast majority of economic data in Europe fell short of expectations. The purchasing managers' indices for Germany and the euro zone continued to fall, reaching their lowest levels for six years. Here - following the election of Boris Johnson as British Prime Minister - the probability of a Brexit without an agreement may have increased significantly again.

In Germany incoming orders and industrial production were significantly lower than previous year. This was noticeable, for example, in the European automobile market which fell by around 8% year-on-year. The mood on the stock market was also adversely affected by profit warnings from various DAX groups.

In view of these economic conditions the European bond markets continued their rally in July. Yields on 10-year German government bonds fell further by twelve basis points to -0.44%. Gold continued to be in demand as a safe haven and rose 3.01% to 1,276.46 euro/ounce.

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