Thursday, January 06, 2022
Stock exchanges under pressure
The fear of interest is back
After a brilliant start into the new year, the stock markets are on the decline. The reason: The US Federal Reserve could soon raise interest rates – and act more resolutely than previously expected.
Speculations on rapidly rising US interest rates spoil investors in the stock markets. Already yesterday the US stock exchanges went down, in the morning the Asian and later the European markets followed suit. The Dax, which started the new year with a tailwind, fell at times by 1.6 percent to 16,018 points. The EuroStoxx50 yielded up to two percent to 4304 points.
The indices have since recovered. The reason traders cite is that fighting inflation is not a bad thing in itself. But the latest minutes of the Fed’s meeting are still putting a spanner in the works for investors, said Christian Henke from the online broker IG Market and added: “The interest rate fears are back.”
As the transcripts of the last Fed meeting published yesterday, the US Federal Reserve is considering a possibly faster rate hike given the surge in inflation. At their meeting on December 14 and 15, the central bankers had already decided to quickly turn away from crisis mode and signaled an average of three interest rate hikes for 2022. The tone of the minutes now suggests that four hikes may be possible this year.
According to the Fed’s minutes, some of its members also spoke out in favor of starting to reduce the central bank’s total assets shortly after the first rate hike. This would no longer replace expiring bonds, which should depress bond prices and increase yields accordingly. This, in turn, would make stocks less attractive compared to fixed income securities.
ING assumes that the US Federal Reserve will end its securities purchases by mid-March. The Fed is likely to begin shrinking its bloated balance sheet before the end of the year. A first rate hike is already apparent in May.
Dollar gains in value
Concerns about unexpectedly rapidly rising interest rates had triggered a sell-off, especially on the Nasdaq technology exchange. The strongly growth-oriented tech companies are considered to be particularly sensitive to interest rates because the higher the interest rates, the higher the financing costs. The most highly rated investments are likely to be particularly vulnerable – not least tech stocks, wrote analyst Jeffrey Halley of the Oanda trading company.
The dollar has improved on interest rate speculation as it makes investing in the dollar area more attractive. The dollar index, which reflects the exchange rate to major currencies, advanced by 0.2 percent to 96.3870 points. The euro hovered around the $ 1.13 mark.
The prices of American and European government bonds came under pressure on the bond market. In return, the yield on ten-year US bonds climbed to $ 1.744, its highest level in more than nine months. The interest rate of the Italian counterparts climbed a year and a half high of 1.314 percent. The yield on ten-year Bunds advanced to minus 0.035 percent, marking the highest value in two and a half years.