Bond markets under pressure
Expectations often influence the markets. For example, those for further interest rate cuts in the USA. However, unexpectedly positive economic data caused the markets to lower their expectations again to some extent. Unfortunately for the bond markets.
October was a mixed month on the stock markets and downright unpleasant for the bond markets, with the German DAX index falling by -1.28%. The broad European share index Stoxx Europe 600 lost -3.35%. In the USA, the S&P 500 rose by 1.62% and the Nasdaq 100 technology index by 1.76%. By contrast, the Nikkei index in Japan fell by -0.51%. Overall, global equities, as measured by the MSCI World Index, rose by 0.70% - all index figures in euro terms.
In light of the interest rate turnaround initiated in the USA, the markets focused on US economic data. The US labour market proved to be robust, with more new jobs created than in August and September and a falling unemployment rate. In addition, the Purchasing Managers' Index for services rose unexpectedly sharply from 51.5 to 54.9 points, indicating expansion. However, with the improved economic outlook, investors also scaled back their expectations of further rapid interest rate cuts by the US Federal Reserve (Fed).
The US inflation data reinforced this development. Although the inflation rate fell to 2.4% in September (previous month: 2.5%), core inflation (excluding food and energy) rose from 3.2% to 3.3% - both figures compared with the previous year. The reduced key interest rate expectations put pressure on the bond markets in particular. Added to this were the increasingly better prospects of a Republican victory in both the US presidential and congressional elections, which would increase the likelihood of fiscal stimulus in the US. As a result, the bond markets experienced their biggest monthly losses since September 2022, with yields on 10-year US government bonds rising by 52 basis points to 4.30% and 2-year US Treasuries by 54 basis points to 4.18% .
In Europe, government bonds also lost ground, but to a much lesser extent. At 2.39%, 10-year German government bonds yielded 27 basis points higher and 2-year bonds yielded 19 basis points higher at 2.26%, due to the ECB's (generally expected) key interest rate cut of 25 basis points to 3.25% on the one hand and the continuing economic downturn on the other. Although the combined purchasing managers' index for services and manufacturing in the eurozone rose marginally from 49.6 to 49.7 points in October, it remains in contractionary territory below the threshold value of 50 and therefore still does not signal an economic turnaround for the better. Accordingly, investors expect the ECB to cut key interest rates further.
In addition to economic expectations, geopolitical tensions over the Iran/Israel conflict made themselves felt on the stock markets, and disappointing figures from major technology stocks led to a noticeable slide in share prices towards the end of the month. However, the price of a troy ounce of gold reached another all-time high and rose - as a sought-after "safe haven" and in an environment of falling real interest rates - by 4.15% to USD 2,743.97 compared to the previous month.
The majority of Asian stock markets performed negatively in October, particularly China and India. In China, however, the official purchasing managers' indices have recently risen, with the index for the manufacturing sector in particular exceeding the 50-point mark for the first time since April at 50.1. This could indicate that the monetary and economic policy measures are slowly beginning to take effect.
Note: Marketing advertisement - All information published here is for your information only and does not constitute investment advice or any other recommendation. The statements contained in this document reflect the current assessment of DJE Kapital AG. These may change at any time without prior notice. All statements made have been made with care in accordance with the state of knowledge at the time of preparation. However, no guarantee and no liability can be assumed for the correctness and completeness.