US inflation weighs on the stock markets

After a strong first quarter, the international stock markets largely went into reverse in April. The development of US inflation was a particular burden, but Iran's attack on Israel also briefly caused high volatility.

The German share index DAX closed the month down -3.03%, while the broad European share index Stoxx Europe 600 fell by only -1.52%. In the USA, the S&P 500 fell by -3.11%. By contrast, Hong Kong's Hang Seng Index provided a counterpoint, rising by 8.63%. Overall, global equities, as measured by the MSCI World, fell by -2.86% - all index figures in euro terms.

With the correction on the equity markets, risk premiums on corporate bonds and US high-yield bonds widened on the bond markets and interest rates on 10-year US Treasuries rose. The equity markets were burdened above all by the development of US inflation. In March, the inflation rate rose to 3.5% (February: 3.1%) compared to the same month last year. Core inflation, excluding the more volatile prices for food and energy, remained unchanged from the previous month at 3.8%.

The US labour market remained stable in March with over 300,000 new jobs created. And the US economy grew by 1.6% in the first quarter compared to the previous quarter - weaker than expected, but significantly stronger than the eurozone, whose economy grew by 0.3% and was thus able to avoid a technical recession. As a result, expectations for interest rate cuts in the US declined even further and largely changed to the view that the US key interest rate plateau would remain at the current level of 5.25 to 5.50% for the time being.

For the eurozone, however, the markets continue to expect a rate cut, which is expected to be announced at the June meeting of the European Central Bank. Inflation data supported these expectations, as inflation in the eurozone fell from 2.6% in February to 2.4% in March and stagnated at this level in April (compared to the same month in the previous year). Core inflation fell from 2.9% to 2.7%. The greatest inflationary pressure in the eurozone recently came from the services sector at 3.7% year-on-year.

The Purchasing Managers' Index for this sector has been in expansionary territory since February of this year, i.e. above the threshold of 50 points, and rose to 53.3 (from 52.9) points in April. In contrast, the Purchasing Managers' Index for the manufacturing sector has remained stable in recessionary territory since August 2022 and currently stands at 45.7 points.

In China, the official purchasing managers' index weakened slightly to 50.4 points, but remained in positive territory (previous month: 50.8). Its counterpart for services fell to 51.2 in April after 53.0 points in March. The Chinese economy grew more strongly than expected in the first quarter at 5.3% compared to the previous year and 1.6% compared to the previous quarter. Growth in fixed asset investments, tax relief and strong exports were the main drivers behind this.

What kept the markets on tenterhooks in the middle of the month was Iran's attack on Israel and Israel's response, which caused the VIX volatility index to spike to its highest level of the year and drove up the price of oil. The price of Brent crude was around USD 87 at the beginning of the month and reached USD 92 around the time of the attack, but fell back to USD 86 at the end of the month. Gold was also in high demand. Over the month as a whole, the price of a troy ounce rose by 2.53% to USD 2,286.25, but was quoted at USD 2,390 in the meantime.

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