Dusseldorf The stock markets have been going down again since the central banker meeting in Jackson Hole around two weeks ago. Fed Chair Jerome Powell has made it very clear that fighting inflation is the top priority. And it doesn’t matter how the markets react to it. The central banks want to keep raising interest rates until inflation rates are under control and are no longer rising so sharply. Even if interest rate hikes cause a recession.
On Thursday, words were followed by deeds in Europe. The head of the European Central Bank, Christine Lagarde, announced that it would raise the key interest rate by 0.75 percentage points to 1.25 percent. This is historic: there has never been such an increase since the introduction of euro cash in 2002. And: The ECB wants to raise interest rates even further in order to get the record inflation in the euro area of 9.1 percent under control. According to Lagarde, however, the economy will slow down significantly as a result.
The current situation is putting the markets under pressure. According to Handelsblatt stock analyst Ulf Sommer, rightly so. He says: Higher interest rates weigh on stocks because of the risk of recession, but also for three other reasons. On the one hand, this increases the cost of borrowing. For companies, this means that they can invest less and their debts become more expensive.
Consumers can no longer borrow as cheaply as they used to and may have less money to spend. In contrast to equities, bonds are also becoming more attractive again. For these reasons, a gradual decline in share prices cannot be ruled out, explains Sommer. In today’s episode, he reveals how investors can arm themselves against it.
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