Fluctuating European stock markets and a weakening economy - what effects can be expected?

Die europäischen Aktienmärkte bewegen sich seit einigen Monaten in einer sehr engen Spanne von gut 5 Prozent. Im Juli wurde ein neues Jahreshoch angesteuert und im August kam es zu einem kleinen Rücksetzer. Die positive Grundstimmung hatte einen leichten Dämpfer erhalten. Seitdem läuft wieder eine leichte Aufwärtsbewegung. Ohne neue Nachrichten und Aussichten spricht viel dafür, dass diese Schaukelbewegungen noch eine Weile andauern.

The economic situation in Europe is rather sluggish. Germany is on the verge of a slight recession. There are initial signs that the increased interest rates are having a more significant braking effect on the economy. The large global corporations still earn very well. Things will be a little more difficult for the domestically oriented economy. While global blue-chip stocks from the luxury, chips, software and technology sectors continue to perform very well, real estate and consumer stocks such as Zalando are weakening.

Weakening China

The weaker economic development in China is also viewed somewhat more cautiously. The problematic developments in the real estate market are particularly damaging there. Country Garden, a real estate development giant with 178 billion euros in debt, only made an interest payment at the last minute. The difficulties in the entire sector are by no means resolved and are also putting a strain on the general economic recovery after the Corona lockdowns. This is also reflected in the Chinese currency weakening against the US dollar.

In contrast, the economy in the USA is still at full steam. There were significant fears in the first half of the year that interest rate hikes would inevitably trigger a recession. However, the economy is currently expanding despite increased interest rates and the unemployment rate is near historic lows. The economy is being driven by enormous government economic stimulus programs and a lot of consumer optimism.

The stock markets have been fueled by the fantasy of “AI” artificial intelligence for several months. After the chip industry and the large software companies and media giants, the topic is affecting more and more areas and industries. The development is based on possible revolutionary developments in the next few years. It will be exciting to see in the next few years whether this is more of a hype or a fundamentally new development.

Positive development?

Inflation and interest rate developments continue to be a key issue. Inflation has come back significantly from its peak in both the USA and Europe, but not quite as strongly as recently expected. Nevertheless, the market assumes that there will be no further interest rate increases in the USA and that the ECB's last interest rate increase in this interest rate cycle is likely to take place in Europe in September.

If this scenario occurs, a positive development could be on the horizon for the stock markets for the rest of the year. However, if, contrary to expectations, inflation becomes firm or even increases slightly again due to rising energy prices in the autumn and winter months, further interest rate increases may be necessary. This potential for disappointment could put stock markets under pressure. It is also important to take into account the enormous financing needs of governments and the effects of the central bank's restrictive monetary policy on the money supply and thus on interest rate developments.