US economy grows strongly
As in the previous month, the international stock markets showed their friendly side in July. Above all, the unexpectedly strong growth of the US economy in the second quarter had a positive effect on the stock markets. In addition, many market participants expect that the central banks in Europe and the USA will not take any further interest rate steps after the interest rate hikes in July.
The German DAX index rose 1.85% and the broad European Stoxx Europe 600 index gained 2.04%. Overseas, the US S&P 500 advanced 2.28% and Hong Kong's Hang Seng Index gained 5.81%. Overall, global equities, as measured by the MSCI World, rose 2.45% - all index data in euro terms.
The unexpectedly strong growth of the US economy of +2.4% in the second quarter (Q1: +2.0%) had a positive effect on the equity markets. There is still no sign of the recession that has been announced since the beginning of the year. The US labour market data for June were also positive with almost 210,000 new jobs created and an unemployment rate of 3.6% (previous month: 3.7%). The massive interest rate hikes by the US Federal Reserve (Fed) do not yet seem to be fully felt, as both consumer spending and the service sector in the US continued to show robust growth - only the industrial sector faltered.
The US Federal Reserve (Fed) raised interest rates by 25 basis points in July to a range of 5.25% to 5.50%, as expected, but withdrew its forecast of a US recession and now only expects growth to moderate. US inflation fell from 4.1% to 3.0% in June, but core inflation (excluding energy and food) fell only slightly from 5.3% to 4.8%. If inflation in the US does not surprisingly rise again, market observers do not expect any more interest rate hikes in this cycle, even though the Fed kept the option of further steps open. Due to the declining but still high core inflation, quick interest rate cuts do not seem very realistic, i.e. the interest rate plateau level is likely to remain in place for some time.
The ECB also raised its interest rate in July by 25 basis points to 4.25%. Unlike in the USA, the signs in the euro area point to recession in the second half of the year. Important leading indicators such as the purchasing managers' index for the manufacturing sector fell from an already low level of 43.4 points in June to 42.7 points in July (values below 50 signal a contracting economy). Lower readings were last seen only during the lockdown in spring 2020. The purchasing managers' index for the services sector also fell for the third consecutive month and now stands at 51.1 points.
Inflation fell from 5.5% to 5.3%, mainly due to falling energy prices. Core inflation (excluding energy and food), on the other hand, rose slightly from 5.3% to 5.5%. In contrast to previous ECB meetings, ECB President Christine Lagarde did not hold out the prospect of a further interest rate hike. Here, too, there is much to suggest that interest rates will not be raised further. However, if inflation does not fall further, another rate hike in the euro area would be possible.
Government bonds with longer maturities came under pressure in view of the robust US economy. The yield on 10-year US government bonds rose by 12 basis points to 3.96%, and their German counterparts yielded 10 basis points higher at 2.49%. In contrast, yields on 2-year US government bonds fell slightly for the first time this year, from 4.90% to 4.87%. German 2-year government bonds reacted even more strongly, with yields falling by 16 basis points to 3.04%. The euro appreciated slightly against the US dollar from 1.08 to 1.10 USD. The price of a troy ounce of gold rose from 1,919.35 to 1,965.09 US dollars.
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