The conclusion of the month of August marks a challenging period for investors, characterized by heightened difficulties in the eurozone due to an unexpectedly pronounced decline in business activity. Despite the release of official data indicating a more substantial decrease in German retail sales in July, investors exhibited indifference.
Over the past year, the European Central Bank (ECB) has executed a rapid succession of rate hikes, achieving historically unprecedented levels in more than two decades. However, the onset of stagnant growth coupled with rapidly deteriorating sentiments among both businesses and households has ignited a fervent discourse regarding the necessity and extent of further policy tightening.
Investor attention remains intently focused on the ECB’s stance on interest rates, mirroring the endeavour of the Federal Reserve, as both central banks strive to curtail inflation through tighter financial conditions. In late July, the ECB signalled its willingness to maintain rates at their current level during the upcoming monetary policy meeting in mid-September. Nevertheless, robust inflationary data could potentially propel the central bank toward a more hawkish standpoint.
Contrary to expectations for a reduction to 5.1%, overall inflation within the euro-sharing nations remained constant at 5.3% in August. This was driven by a notable surge in energy costs during the month, as revealed by Eurostat data on Thursday. Nonetheless, a fundamental gauge that excludes the volatile components of food and energy exhibited the anticipated easing from 5.5% in July to 5.3% this month, despite minimal movement in services inflation.
Financial markets revised the likelihood of a September rate hike from approximately 50% earlier in the week to 33%; however, expectations suggest that another rate hike may still transpire within the year, possibly in October or December.
Simultaneously, the rapidly deteriorating economic landscape will offer advocates of a cautious approach within the ECB’s Governing Council substantial rationale to advocate for a pause in tightening measures. This intricate scenario implies that the ECB’s deliberations will remain unsettled until the presentation of new economic projections by the staff in the days leading up to the meeting scheduled for September 14.
Proponents of a cautious approach argue that the pace of growth has substantially waned, and without significant stimuli for a resurgence, the region’s economy, which has remained stagnant over the past three quarters, could potentially slide into a recessionary phase.
In contrast the hawks see such a slowdown as desirable, particularly if it were to cool down the very tight labour market, because price pressures remain elevated and could lead to inflation becoming stuck at above the ECB’s 2% desired target.
The rising inflationary and recessionary fears have put the DAX 40 index into test. Sticky inflation is exerting pressure to the ECB to deliver more rate hikes, while the deteriorating macroeconomic backdrop is testing the theory of rate hikes tackling inflation. The rally in the benchmark German index lost momentum in August and is likely to be capped for the year, as stock prices are too high relative to earnings and recession fears mount. The deteriorating Relative Strength Index indicator conditions suggest that the rally is running out of steam and further consolidation between 15,460 and 16,500 is likely in the next few months.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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