Risk mixture

The war in Ukraine, persistently high energy prices, strained global supply chains and rising inflation weighed on the stock markets in April. The high interest rate expectations also put pressure on the stock markets and, moreover, on the bond markets.

April was a difficult month for the stock markets. In the USA the American technology stock market, measured by the Nasdaq 100, slumped by -13.26% in US dollar terms (euro: -8.88%) and thus suffered the highest monthly loss since the stock market crash in October 2008; the broad US index S&P 500 fell by -8.80% in US dollar terms (euro: -4.19%) and thus - viewed over the first four months - had its worst start to the year since 1939. The German DAX index fell by -2.20%, slightly more than the broad European index Stoxx Europe 600, which fell -1.20%. Overall global equities as measured by the MSCI World corrected by -3.81.

A whole series of risk factors weighed on the stock markets: the war in Ukraine and fears of further escalation weighed on sentiment and increased the pessimism of the investors. Russia stopped gas deliveries to Poland and Bulgaria. This triggered concerns, primarily in Germany, that it too would soon be cut off from Russian gas even before alternatives could be found. Energy prices remained high accordingly - the price of a barrel oil (Brent) rose 1.3% to 109.4 US dollars.

The fact that energy prices did not rise even further was mainly due to China sticking to its zero-Covid strategy. Corona outbreaks in the capital Beijing and the megacities Guangzhou and Hangzhou led to mass tests of the population to avoid a lockdown ordered by the authorities in the metropolis Shanghai. The result was traffic jam of container ships in the world's busiest container port putting further strain on already strained global supply chains.

The price pressure on energy, commodities and food remained high in April. In the euro area inflation reached 7.5% compared to April 2021, the highest price since the creation of the common currency and in the USA it rose to 8.5% (in March), the highest price since 1981. Due to the tense global supply chains and the war in Ukraine experts do not expect any easing in the coming months either. Inflation intensified the pressure on central banks.

Market participants expected the US Federal Reserve to raise key interest rates by 50 basis points to a range of 0.75-1.0%. The majority of the market also expected a further hike in height of 50-75 basis points in June and a key interest rate of 2.50-2.75% at the end of the year. The European Central Bank has so far left its key interest rates at 0.0%, but ECB President Christine Lagarde said they are "very much on the way to normalizing" monetary policy. Forecasts call for a first hike in height of 25 basis points in July and three more rate hikes at this level could follow by the end of the year.

The high interest rate expectations and the growing national debt burdened the bond market. Interest rates on ten-year German government bonds rose from 0.55% to 0.94%, and their US counterparts yielded 59 basis points higher at 2.93% as of the end of April. The price of a troy ounce of gold fell slightly by -1.76% to US$ 1,897.96.


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