Dax gets a beating: That's why the stock markets are rushing down

The mood on the stock markets is gloomy, prices are falling.

Dax gets a beating: That's why the stock markets are rushing down

The mood on the stock markets is gloomy, prices are falling. It currently doesn't look like that will change any time soon. The central banks could be forced to raise interest rates more than is healthy for the economy.

The stock markets continue to go down. After Wall Street had its worst day since the start of the corona pandemic yesterday, the markets in Asia and Europe are now following suit. Expressed in numbers: In Frankfurt, the Dax lost more than 2 percent to around 13,700 points, the Stoxx 600, which includes the most important European stocks, fell almost 2 percent. In Tokyo, the Nikkei lost 2 percent, the Hong Kong stock exchange closed 2.6 percent lower. Thanks to the easing of corona restrictions in China, the Shanghai stock exchange held up comparatively well and was only 0.1 percent lower.

The leading US index Dow Jones Industrial had previously fallen by 3.6 percent. The market-wide S

The fear of stagflation is gone, of a poisonous mixture of high inflation and a simultaneously weakening economy.

The background: The USA and Europe are currently being hit by extremely high inflation - fueled by high energy prices and disrupted supply chains. The US Federal Reserve has therefore heralded the end of its ultra-loose monetary policy and significantly increased interest rates. Fed Chair Jerome Powell is preparing the markets for further aggressive interest rate moves. In view of weak growth in the eurozone, the European Central Bank has so far steadfastly refused to raise interest rates, which have long been in negative territory. But the central bankers are now clearly signaling that this will change in July.

Stock markets usually react to higher interest rates with price losses. Because this makes investment alternatives that yield interest more attractive. In addition, higher interest rates tend to dampen the economy and thus cloud the profit prospects of companies. This particularly affects highly indebted technology companies, which suffer particularly from rising interest rates.

At the moment the situation is even worse. The fear on the markets: In order to get the high inflation under control, the central banks could be forced to raise interest rates so much that the economy slides into recession - i.e. there is a phase of shrinking economy and high inflation.

The high inflation rates alone are already causing price losses. The latest data from the US, UK and Canada suggested inflation will remain high for longer than originally expected, says investment strategist Michael Hewson of brokerage firm CMC Markets. "This is bad news for consumers, profit margins and growth."

The mechanism: In addition to higher interest rates, rising prices also result in less consumption. Consumers are no longer able or willing to afford certain products that have become much more expensive. This depresses the profits of companies, which are also finding it increasingly difficult to pass on cost increases - for example for wages, transport, materials and energy - to their customers.

US retailers, for example, are currently spoiling the mood on the stock exchanges because they are cashing in on their forecasts. After Walmart on Tuesday, it was now Target's turn. Its shares fell to their lowest level since November 2020, and the market value fell by a quarter. The retailer had pointed to a significant increase in costs, which means that it is likely to be less profitable this year than initially announced.

Against this background, fresh economic data from the USA should be of particular interest in the afternoon - from which they promise investors conclusions about the pace of the expected rate hikes by the Fed. The schedule includes the economic barometer from the Federal Reserve Bank of Philadelphia, which is forecast to have fallen in May.


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