Monetary policy turnaround in the USA

The stock markets benefited seasonally from a good development towards the end of the year, which followed the price slump from the end of November onwards. In view of the inflation trend, the US Federal Reserve said goodbye to its hitherto expansive monetary policy.

Most international stock markets performed well in December and were able to more than compensate their losses of previous month. The German DAX index posted a gain in height of 5.20%, the broad European Stoxx Europe 600 index rose 5.37% and the US S&P 500 gained 3.67%. Hong Kong's Hang Seng Index, on the other hand, was one of the few exceptions, ending the month with a negative result in height of -0.99%. Overall global equities, as measured by the MSCI World, rose by 3.50% - all index figures in euro terms.

On a seasonal basis, equity markets benefited from a good year-end performance that followed the price slump at the end of November. All sectors of the global equity market benefited except automobiles and retail.

However, the dominant theme of December - since the emergence of the Corona variant Omikron at the end of November - was the change of the monetary policy by the U.S. Federal Reserve (Fed) as well as other central banks. In the USA the inflation rate at the end of November rose to 6.8% (euro zone: 4.9%) compared to the same month of previous year, the highest price since 1982. Supply problems, material bottlenecks and sharply rising energy costs are currently the main causes of inflation. In view of this development the Fed announced that it would significantly increase the pace of its tapering, i.e. the curbing of its bond purchases and thus allow the bond-buying program to expire in March 2022. The majority of market participants therefore expect three U.S. interest rate steps in 2022. In Europe the Bank of England raised its key interest rates in an unexpected move, the first since 2018, but the European Central Bank left its expansionary monetary policy unchanged.

As a result high-quality government bonds lost ground. Yields on 10-year U.S. government bonds rose seven basis points to 1.51%, while their German counterparts yielded -0.178%, 17 basis points higher than previous month.

In Germany the ifo Business Climate Index declined for the sixth consecutive month ending the year at 94.7 points. The decline was due to the overall deterioration in the assessment of the current situation and pessimistic expectations. However, the ifo Business Climate Index for industry had risen for the first time since June 2021 as new orders increased significantly and expectations were more optimistic.

The price of a troy ounce of gold recovered slightly rising 1.39% to US$1818.22. In December, however, the strongest price rise was recorded in the field of energy. The price of a barrel of oil (Brent) increased by 10.2% to 79.0 U.S. dollars and for the brand WTI by 13.6% to 76.31 U.S. dollars.

 

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