On Friday (15:00 CET), Federal Reserve Chairman Jerome Powell will be in the spotlight. At the global central bank conference in Jackson Hole, Powell is expected to provide insight into the expected pace of anticipated rate hikes. Ahead of the meeting, top Fed officials have repeatedly indicated that the US central bank will continue to raise the benchmark rate until inflation returns to the two percent target. This has so far disappointed expectations that the Fed could slow its rate hike course due to weaker economic data.
In the run-up, interest rate and recession fears as well as profit-taking dominated events on the international stock markets. On Wall Street, the Dow Jones Industrial closed on Friday -0.86% lower than the previous day at 33,706.74 points, thus recording a moderate loss of -0.2% over the week. The broad S&P 500 declined -1.29% to end the trading session before the weekend at 4,228.48 points. The Nasdaq was down nearly -2%. Amid recession worries, defensive, low cyclical sectors such as telecoms, pharmaceuticals and food held up well, while cyclical/consumer sectors such as travel, auto and retail weakened.
In the bond market, US government bond prices came under increasing pressure ahead of the highly anticipated Federal Reserve meeting in Jackson Hole, and the yield on ten-year Treasuries rose to 2.97% in return.
Shares in the Asia-Pacific region were mixed on Monday. Chinese markets rose after China cut its benchmark lending rates. Hong Kong’s Hang Seng index was up around +0.2% and the Shanghai Composite was + about +0.6% higher. In Tokio, the Nikkei 225 traded about -0.5% lower.
At the start of the week, the Chinese central bank eased two important reference rates for loans once again. The one-year interest rate that banks can offer to companies and households was cut from 3.7% to 3.65% and the five-year rate, which is the reference for mortgage loans, was cut from 4.45% to 4.3% – both rates are now trading at historic lows. With this, the People's Bank of China is trying to encourage commercial banks to lend more at cheaper rates to boost the economy. Last week, the central bank had already surprisingly eased two key interest rates to increase liquidity for banks.
The euro remains under pressure and approached parity against the US dollar. The last time this was the case was in mid-July. The background to this is a probable further widening of the interest rate differential, as the Federal Reserve is likely to continue its fight against inflation with further – possibly even more substantial – interest rate hikes. The European Central Bank, on the other hand, appears hesitant, but also faces a delicate challenge due to the looming energy crisis resulting from the conflict with Russia. The European single currency is also being burdened by political uncertainties within the EU. In Italy – the third-largest economy in the euro zone – there is a risk of a slide to the right on September 25 if the far-right “Fratelli d'Italia” led by party leader Giorgia Meloni succeeds in seizing power in Rome.
At the producer level, prices in Germany increased by +37.2% on an annual basis in July, the strongest increase since the start of the data series in 1949. Also, in the monthly comparison the price increase remains violent with +5.3%. The background remains the sharp rise in energy prices, which have increased by around +100% compared with the same period last year. Natural gas has even become more than +160% more expensive for German companies. Price developments at producer level are generally transmitted to consumer prices with a time lag.
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