Market report: DAX should fall further

For investors, the prospect of continued monetary tightening in the US is a reason to stay away from the stock market. At the moment, the DAX looks to be off to a weak start.

According to calculations by banks and brokerage houses, the DAX will start lower on Thursday. The prospect of further rising interest rates in the USA dampened the mood of stock investors yesterday, with the DAX losing 0.6 percent and closed at 16,023 points.

Fed Chairman Jerome Powell said at a hearing in the US Congress that there was still “a long way” to go before the target of an inflation rate of 2.0 percent would be reached. According to Powell, almost all members of the body responsible for interest rate policy expected that further hikes should be appropriate by the end of the year.

The prospect of two more rate hikes of 25 basis points each is “a pretty good estimate” of where the central bank is headed if the economy stays the way it is, Powell said. “It’s clear that the FOMC wants the market to understand that a rate hike will be on the table at the next meeting,” said Kevin Cummins of NatWest Markets.

Today central bank decisions are on the agenda in Norway, Switzerland and Great Britain. According to analyst Michael Hewson from CMC Markets UK, all three countries are also likely to raise interest rates, with the Bank of England possibly even more than expected at 0.5 percentage points.

The interest rate hike in Turkey is likely to be significantly stronger. Analysts expect an average increase of 12.5 percentage points to 21 percent. After his re-election, Turkish President Recep Tayyip Erdogan indicated a turnaround in his controversial monetary and financial policies. Under pressure from Erdogan, the central bank had previously reduced the key interest rate from 19 percent in 2021 to currently 8.5 percent, despite high double-digit inflation rates.

The signals from US Federal Reserve Chairman Jerome Powell for further interest rate hikes spoiled the mood of investors on Wall Street yesterday. The Dow Jones closed 0.3 percent lower to 33,951 points. The tech-heavy Nasdaq fell 1.2 percent to 13,502 points. The broad S&P 500 lost 0.5 percent to 4365 points.

In Asia, the Nikkei Index, which comprises 225 stocks, remained virtually unchanged at 33,576 points. The broader Topix index rose 0.6 percent to 2,310 points. The Shanghai and Hong Kong stock exchanges were closed for a holiday.

After the difficulties at Credit Suisse, the Swiss National Bank (SNB) is calling for measures to prevent such problems in the future. “These measures must strengthen the resilience of banks in order to prevent a loss of confidence and to ensure a wide range of effective options to stabilize, recover or resolve a systemically important bank in the event of a crisis,” said the SNB’s Financial Stability Report.

The experience with Credit Suisse shows the need to review the too-big-to-fail framework to enable early intervention. Credit Suisse had to be rescued in March as part of a state-orchestrated emergency takeover by larger rival UBS.