Monthly Commentary
Most international stock markets experienced a brilliant comeback in October after a deep red third quarter. The German DAX rose 9.41% outperforming the broad European Stoxx Europe 600 index, which gained 6.28%. On the other side of the Atlantic, the S&P 500 advanced 6.93%. Only Hong Kong's Hang Seng Index lost -15.55%. Overall global equities as measured by the MSCI World gained 6.06% - all index data in euro terms. The modified expectations of market participants regarding the monetary policy of the central banks in the USA and Europe was an important catalyst for the soaring share prices. The US Federal Reserve had raised its key interest rates by 75 basis points each in June, July and September (and the European Central Bank in July, September and October). This raised hopes that central banks might adopt a less aggressive monetary policy in the future. The hope was strengthened by the fact that ECB President Christine Lagarde did not want to commit at the ECB press conference whether the rate hikes would continue at this pace. She also gave a gloomy economic outlook for the Eurozone, saying that further interest rate rises could weigh even more heavily on the Eurozone economy. Moreover, across Europe October was warmer than usual so that heating was hardly necessary. The gas storage facilities were therefore not burdened and the gas price fell significantly in October - which also supported the markets. However, spokespersons for the US Federal Reserve countered this hope towards the end of the month as inflation in the US reached 8.2% year-on-year at the end of September. While this was a slight decline from August (8.3%), it was lower than expected. In the euro area inflation reached a new high of 10.7% at the end of October (Germany: 10.4%) compared to the same month previous year. Experts therefore expect further key interest rate hikes by the end of the year up to 5.0% in the USA and up to 2.75% in the euro area. Despite high inflation rates and energy prices the German economy was able to surprise positively in the third quarter and increased the gross domestic product by 0.3%. Economists had expected a decline in height of -0.2%. However, this did not improve the mood of the German economy. The ifo business climate index remained at a low level of 84.3 points (84.4 previous month). This is mainly due to pessimistic business expectations. On the bond markets yields on high-quality government and corporate bonds continued to rise with only high-yield bonds yielding lower than previous month. Yields on 10-year German Bunds rose from 2.11% to 2.14% and that of their US counterparts increased from 3.83% to 4.05%. In the US the yield curve remains inverted as yields on 2-year US Treasuries are higher at 4.48%. This suggests that the probability of recession remains high for the US. The price of a troy ounce of gold fell 1.6% to USD 1,654. Given the continued strength of the US dollar and persistent ETF outflows, this was the seventh consecutive monthly decline.
