News and Information from the Financial Markets

Tuesday begins with a cautiously positive trend. After weak data from Asia, investors are hoping for more information on the Fed's course in the evening.

From Asia, the most important Asian indices such as the Nikkei and the Hang Seng provide moderately negative to neutral guidance on Tuesday. However, this appears to have little or no influence on the European indices. Shortly after the market opened, Germany's leading index, the DAX, was virtually unchanged, as was the Euro Stoxx 50.

A certain degree of restraint is expected on the stock market today, as many investors are eagerly awaiting the minutes of the US Federal Reserve's last meeting, which will be published this evening. After the Fed left interest rates unchanged again at the last meeting, investors are hoping that the FOMC minutes will provide information on the reasons behind the decision. In conjunction with the latest data on inflation and the US economy, a clear picture could emerge as to whether the cycle of interest rate hikes in the US may have come to an end. If investors' expectations are confirmed in the evening, the momentum of the past week could return to the markets.

Advertisement

According to figures published today, the rise in consumer prices in the US has fallen more than expected to 3.2% year-on-year.

Year-on-year inflation in the United States was still at 3.7% in September. The consensus among analysts for the rise in consumer prices for October was a price increase of 3.3% year-on-year and 0.1% compared to the previous month. However, consumer prices actually rose by 0.1 percentage points less both month-on-month and year-on-year, by 3.2% and 0.0% respectively. The core rate of the consumer price index excluding food and energy prices also fell by 0.1% to 4.0%, contrary to the expected stagnation.

The stronger decline in inflation in the US is a positive sign for the stock markets. The Federal Reserve has always emphasised that it pays particular attention to the development of the core rate when making interest rate decisions. The current decline is a further sign that the Fed's cycle of interest rate hikes may have finally come to an end. The US indices initially reacted to the inflation data with a rise in pre-market trading.

However, this falling inflation is bad news for the US dollar. The EUR/USD exchange rate rose to the 1.08 mark following the publication of the figures, but has not yet been able to overcome it. In contrast, the gold price reacted positively to the data and is currently rising to around USD 1,955 per troy ounce.

Advertisement

Last Friday, the rating agency Moody's downgraded the outlook for the US credit rating from stable to negative. The credit rating itself is not affected by this.

The rating agency justified this step primarily with the enormous US budget deficit, but the political situation in the USA also played a role in the decision. The USA is once again facing a possible government shutdown if the federal budget is not passed this week. The creditworthiness of the United States retains its AAA rating. However, following this decision, it cannot be ruled out that this could change in the future. Moody's is the only one of the three major rating agencies that still has the top rating for the USA's creditworthiness. Both Fitch and S&P had already lowered their ratings by one grade.

The downgraded outlook for the credit rating could have an impact on the bond market. Bond yields could rise due to the higher risk. In the current situation on the financial markets, this would in turn have a negative impact on the stock markets. The first signs of a slowdown in the US economy are emerging and investors could shy away from the risk of stocks and flee to the high yields of bonds. The indices on the US stock markets initially reacted with a moderate fall in pre-market trading on Monday. At the opening of the US market, the Dow Jones was down 0.12%, the S&P was down 0.30% and the Nasdaq was down 0.46%.

The stock market continued its weak start into the week on Tuesday. Weak data from Asia supports the current moderately negative attitude of investors.

Germany's leading index, the DAX, is reacting cautiously to the negative data from Asia. However, the industrial production figures published in Germany this morning are also weighing on the index. This fell by 1.4 % compared to the previous month and by 3.86 % compared to the previous year. The index is currently down around 48 points, or 0.32%, at 15,088 points. The indices in the euro area are slightly negative overall and the leading European index, the Euro Stoxx 50, is currently down around 13 points, or 0.32%, at 4,144 points.

Investor sentiment is certainly also being dampened by the Reserve Bank of Australia's decision. Last night, the Australian central bank raised the key interest rate by 25 basis points from 5.10 % to 5.35 %. The growing hope that the global cycle of interest rate hikes may have come to an end has thus been severely dampened, and the current restraint on the part of investors is further underpinned.