Economy Weekly Outlook: Inflation fears and central banks set the direction for DAX

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Investors in Frankfurt are currently fearing higher inflation, which in the United States reached its highest level in more than 40 years at 8.6 percent on Friday in May. Ulrich Kater, chief economist at DecaBank, said the stock markets were complaining about fears of inflation and dwindling economic confidence. Investors fear that high inflation rates in many regions of the world will soon dampen people’s willingness to buy as they have to spend more money on groceries, electricity and rent. At the same time, the Fed’s tough stance on curbing inflation may pause as higher interest rates are likely to make businesses and consumers more reluctant to invest and borrow. Inflation has not yet peaked, wrote economic strategist Anita Markowska from investment house Jefferies. Expectations that the current easing in global commodity supply chains will bring inflation back down have faded. Experts therefore now expect the Fed to raise interest rates by 0.75 percentage points. Against this backdrop of inflation, it should come as no surprise that the DEX fell three percent below the 13,800 mark on Friday alone. It threatens to permanently fall into a downtrend channel that runs from January to late May. However, such testing of the old downward trend is not uncommon and – at least from a technical point of view – is not yet a clear signal for further price losses. And the European Central Bank is also under pressure to do something about inflation. The ECB reacted to inflation, which was record high compared to other important central banks, and announced the first interest rate hike in the euro area in eleven years for July. Most importantly, the stock market is interested in the pace of monetary tightening currently affecting riskier asset classes. Interest rates are rising, safe investments such as time deposits are an issue again. Yields, which have been low for some time, are only small consolation for investors. High inflation is eating away at this income. In addition to the measures taken by the US monetary authorities, retail sales in China and the US for the month of May are also of importance in the new week. They are published in the middle of the week and can provide an indication of the extent to which the sharp rise in prices is dampening consumer spending. In Germany, the ZEW Indicator of Economic Sentiment on Tuesday is one of the first leading indicators for June in the calendar. “Meanwhile, confidence is rising again, perhaps because there are no risk scenarios such as a complete stop to Russian energy supplies,” writes Commerzbank expert Balz. The big expiry day on the stock exchanges will probably cause a stir on the stock exchange on Friday. Futures contracts on stocks and indices on futures exchanges then expire. Stockbrokers speak of “major expiration” or “quadruple expiry” when options and futures on the index and individual stocks expire on the same day. On these days, stock prices and indices can fluctuate significantly without any significant company or economic news. Behind these activities are market participants whose deadlines for realizing derivative transactions are expiring. Large fund or asset managers typically try to steer current prices in the direction of the prices they are committed to on a futures exchange.

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