Germany’s economy is heading for a recession. Bank experts predict a further decline in stock indices

By JustForex

At yesterday’s stock market close, the Dow Jones index (US30) decreased by 1.11%, and the S&P 500 index (US500) fell by 1.03%. The NASDAQ Technology Index (US100) lost 0.63% on Monday. The Fed’s aggressive tightening campaign has pushed the US dollar to new multi-year highs, and many are worried about the consequences of such a strong dollar. Fed officials’ statements continue to be hawkish, with Boston Fed President Susan Collins saying Monday that additional tightening is needed. The US 2-year bond yields have reached 4.34%. In addition, a strong dollar could lead companies to release weak forecasts for the coming quarters, which could further exacerbate the drop in stock indices.

According to strategists at Morgan Stanley, a sharp rise in the dollar usually ends in a crisis. MS experts believe that a possible minimum for the benchmark S&P 500 index will come late this year or early next year at 3,000-3,400 points. That means an 8-13% decline from current prices.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.46%, France’s CAC 40 (FR40) fell by 0.24%, Spain’s IBEX 35 (ES35) lost 0.99%, Britain’s FTSE 100 (UK100) closed up to 0.03%.

Germany’s economy is heading for recession, the IFO Institute said Monday, reporting a stronger-than-forecast drop in business activity across all sectors. The business climate index fell to 84.3 from 88.6 in August. The decline was noticeable in all sectors of the German economy. The report said the energy price shock is dragging consumers’ purchasing power down and making production unprofitable for many companies. Germany is struggling to avoid gas shortages this winter.

ECB head Christine Lagarde said yesterday that the Governing Council intends to continue raising interest rates at its next meetings, even though the economic outlook is worsening.

Giorgia Meloni won a clear majority in Sunday’s elections in Italy, making her the country’s first female prime minister at the head of the most right-wing government since World War II. The center-right won 44.34% of the vote in the elections to the Chamber of Deputies.

EU countries plan to delay a cap on Russian oil prices because of the controversy.

Russia’s actions in Ukraine will cost the world economy $2.8 trillion in lost production by the end of next year – and even more if a harsh winter leads to rationing of energy consumption in Europe, the Organization for Economic Cooperation and Development (OECD) said Monday. Global financial companies, still reeling from multibillion-dollar losses due to their business withdrawal from Russia, are now reviewing the risks of doing business in China after escalating tensions over Taiwan.

Turkey and Kazakhstan do not recognize the results of the referendums in the DNR, LNR, Kherson, and Zaporizhzhia regions.

Oil prices hit a nine-month low on Monday amid choppy trade under pressure from a strengthening dollar and expectations of new sanctions against Russia. It also became known yesterday that more than 1 million barrels of oil from the US are scheduled to be delivered to Europe daily. Supplies from the US should come to replace oil from Russia.

Asian markets were trading lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 2.66%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.44%, and Australia’s S&P/ASX 200 (AU200) ended Monday down by 1.60%.

The Chinese economy will recover moderately in 2023 after sluggish growth in 2022. In June, the OECD projected the economy to grow 4.4% in 2022 but now expects growth to be only 3.2%. By 2023, growth is projected at 4.7%.

S&P 500 (F) (US500) 3,655.04 −38.19  (−1.03%)

Dow Jones (US30) 29,260.81 −329.60 (−1.11%)

DAX (DE40) 12,227.92  −56.27 (−0.46%)

FTSE 100 (UK100) 7,020.95 +2.35 (+0.033%)

USD Index 114.13 +0.93 (+0.82%)

• – US Fed Chair Powell Speaks at 14:30 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 14:30 (GMT+3);
• – US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
• – US FOMC Member Bullard Speaks at 16:55 (GMT+3);
• – US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
• – US New Home Sales (m/m) at 17:00 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.