07/10/2019 - Markets: Monthly Commentary September
Concerted monetary policy
The central banks of the USA and China as well as the European Central Bank relaxed their monetary policy in September. They took various measures by lowering key interest rates, lowering the minimum reserve rate and launching a new bond purchase program, and the international stock markets then made gains.
Upwards, that was the prevailing direction that prices on the international stock markets took in September. The German share index DAX gained 4.09%, outperforming the broad European share index Stoxx Europe 600, which gained 3.60%. In the US, the S&P 500 index advanced by 2.51% and the Hong Kong Hang-Seng index also rose by 2.25%. The global share index MSCI World rose by 2.74% in September - all index figures in euro terms.
Monetary policy played a major role in the recovery of the equity markets. The European Central Bank resumed its EUR 20 billion monthly bond purchase program, which was indefinite for the time being, and lowered its deposit interest rate from -0.4% to -0.5%. After the end of July, the US Federal Reserve again lowered its key interest rate by 25 basis points to between 1.75% and 2.0%, and in China the central bank reduced its minimum reserve rate for banks for the third time. While the ECB thus continues to operate in financial crisis mode and is trying to move low inflation towards its target of 2.0%, the measures taken by the central banks in the USA and China are aimed at providing the market with more liquidity and supporting the economy against the backdrop of the trade conflict.
The trade conflict between the US and China eased slightly in September, which was also very well received by the markets. Although the US put its 15% tariffs on additional Chinese imports into effect, talks were resumed and described by both sides as "constructive". Other measures already announced were suspended for the time being, and both the US and China spoke of a possible provisional conclusion.
Market sentiment also improved with the unexpectedly rapid formation of a new government coalition in Italy under Prime Minister Conte and the participation of the five-star movement and the Social Democrats, as well as the passing of a law in the UK banning the government from an unregulated Brexit. In the US, real estate and labour market data improved and inflation rose and approached the Federal Reserve's target of 2.0%.
In the US, the ISM Manufacturing Purchasing Managers' Index fell to 49.1 points, indicating a shrinking economy, and consumer confidence also fell sharply. In Germany, the purchasing managers' index for the manufacturing sector reached a ten-year low of 41.4 points, while its counterpart from the euro zone fell to 45.6 points. Incoming orders and industrial production also declined. Only German exports rose slightly.
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