Depressed expectations

Energy prices, inflation and rising key interest rates gripped the markets and depressed business expectations and consumer sentiment. Share prices fell across the board, while bond yields rose significantly.

September brought deep red results for the international stock markets. The German stock index DAX lost -5.61% and the broad European index Stoxx Europe 600 lost -6.57%. In the USA, the S&P 500 lost -6.89%. Hong Kong's Hang Seng Index suffered the most significant losses at -11.37%. Overall, global equities, as measured by the MSCI World, fell by -7.02% - all index figures in euro terms.

Inflation, rising interest rates, hawkish statements by key central bank members and the ongoing energy crisis in Europe sent stock markets plummeting in September. In the euro area, inflation continued to rise in September (+0.9%) and reached the 10.0% mark compared to the same month last year. The main driver of inflation was energy prices, which rose significantly compared to the same month of the previous year.

The confidence of economic participants, especially in Germany, but also in Europe, fell again in September. The German ifo business climate index, which represents an average between the assessment of the current business situation and expectations, fell from 88.6 to 84.3 points and thus deteriorated significantly. The gap between the assessment of the current situation (94.5) and expectations (75.2) has widened considerably. Expectations are approaching the level of April 2020, i.e. the peak phase of the Corona recession. The reason for this is the sharp rise in energy prices, especially for the manufacturing sector, which sees its competitiveness threatened. Added to this is consumer sentiment (and the associated reluctance to spend), which according to the German market research institute GfK has fallen to a new record low - the lowest level since 1991.

In view of high inflation in the Eurozone, the European Central Bank raised key interest rates by 75 basis points to 1.25% in September. ECB President Christine Lagarde also announced that she would "bring inflation back to 2% over the medium term" and raise key rates further at the upcoming ECB meeting in October. In the US, the Federal Reserve (Fed) raised key interest rates in September for the third time in a row (after June and July) by 75 basis points to the current range of 3.00 to 3.25%. Since the Fed's monetary policy seems more determined than that of the ECB, the US dollar was able to appreciate further against the euro. The common currency fell below parity with the greenback in September and was quoted at USD 0.98 at the end of the month. At the beginning of the year, one euro was still worth USD 1.13.

On the bond markets, inflation and the monetary policy of the central banks made themselves felt through sharply rising yields. At 2.10%, 10-year German Bunds yielded 57 basis points more at the end of the month than at the beginning. The yields of their US counterparts rose by 64 basis points to 3.83%. Gold failed to live up to its traditional role as a crisis and inflation anchor in the face of a markedly appreciating US dollar. The price for the troy ounce fell by almost 3% to USD 1,696.



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