The Tribune

By CHRIS ILLING

Business Developer

ActivTrades Corp

What a stock market week. The euro reached a new 20-year low on Friday, while the yield on the ten-year Bund tested the 2 percent mark for the first time in nine years. The euro’s exchange rate fell to $0.97, while the yield on ten-year Bunds caught on around 1.95 percent after rising to 2.01 percent at the start of trading.

The German stock market index, Dax, temporarily fell to its lowest level since November 2020 and was only quoted at 12,206 points on Friday afternoon. Many commodity prices also went down. The price of copper, for example, which is considered an indicator of the global economy’s health under the nickname, ‘Dr Copper’, fell another 2.3 percent to $7,453 per ton. The Brent crude oil index fell by almost 2 percent to $88.83 per barrel. The price of gold fell to its lowest level since April 2020; at times, an ounce (31.1 grams) cost only $1,641.

The reasons are obvious. That at least Europe has entered a recessionary phase is now doubted by only a few. The interest rate hikes apparently scared off many investors, in addition to the hard-to-miss signs of a downturn. No fewer than 13 central banks around the world have decided on their interest rate policy this week, many opting for rather aggressive hikes. On Thursday, America’s Federal Reserve announced it will continue to raise key interest rates into next year.

The economic pessimism was recently confirmed by the German purchasing managers’ indices, according to which that economy shrank surprisingly sharply in September. In the euro area, business was as bad as it was more than 18 months ago. The inflation figures for Germany and the euro area will be published next week.

Most financial experts expect German inflation already reached a double-digit level in September, and is only very slightly below the euro area. According to surveys, more and more citizens distrust the European Central Bank (ECB) and expect an inflation rate well above the promised 2 percent in years to come.

But, on the other side of the Atlantic, the picture is almost the same. The Dow Jones Industrial Average hit a near two-year low on Friday, the first major US stock index to fall below its June trough on an intra-day basis, and marking a new low for the year following fears of an economic slump brought on by the aggressive interest rate hikes.

The euro, on the other hand, depreciates against the dollar for two reasons. First, the US Federal Reserve is likely to take even more decisive action against high inflation than the ECB. In addition, the economic risks in the euro area are higher because, unlike the US, an energy crisis threatens. The British pound fell to $1.0971, its lowest level against the dollar in 37 years. Former treasury secretary Lawrence Summers criticises the economic policies being adopted by new UK prime minister, Liz Truss, saying they are creating the circumstances for the pound to sink past parity with the US dollar. Other stock market analysts also point to the attractiveness of the dollar as a “safe haven” against the background of an impending recession in Europe, the weakening Chinese economy, and the ongoing Ukraine war. The dollar is the only game in the city right now.