Inflation worries weigh on the stock exchanges

Fear of sharply rising consumer prices is growing on the stock exchanges. The economy is also concerned about the risk of corporate bankruptcies. How do experts assess the prospects?

With mask: trader on the New York Stock Exchange

AFear of inflation makes investors cautious. After initial gains on Friday morning, the German leading index Dax quickly fell again by up to 0.2 percent to 15,214 points. The previous pandemic profiteer, Delivery Hero, headed the list of losers. The food delivery platform’s share price lost more than 2 percent.

How do experts assess the stock market prospects? In view of the current market environment, Nicolas Faller, Co-CEO of Asset Management at the Swiss private bank Union Bancaire Privée (UBP), considers a rise in inflation to be conceivable. This can already be guessed at due to the tension in the raw materials sector and the rising prices there. “But in view of the production capacities of the global economy, I cannot imagine that inflation rates will be in the critical range of 4 to 5 percent in the long term.”

According to Faller, the central banks have to be very careful. Because many companies are not supported by the states on a permanent basis. Because of their high level of debt, excessive interest rate hikes could quickly overwhelm many companies. The greatest risk for the financial markets are corporate insolvencies. If these were higher than expected, this could put corporate bonds in trouble. A crash in the credit markets also affects stocks and other securities. The banks could then run into problems with the rise in non-performing loans.

According to a study published on Friday, the economic research institute ZEW expects the number of insolvencies to rise, especially in the case of smaller companies. According to ZEW, bankruptcies are likely to increase in the coming months, especially in the areas of gastronomy, accommodation, tourism and clothing affected by the Corona crisis. In the four months after the start of the pandemic in 2020, the number of company breakdowns in the service and trade sector had decreased disproportionately, according to the information.

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To the detailed view

According to Faller, airlines, hotels, tourism and the automotive industry are particularly affected by the corona crisis. Technology and pharmaceuticals are the winners. These sectors are currently having a major impact on share price developments on the stock markets.

Sharp price increases in America

The surprisingly high inflation in the United States had already weighed on the German stock market on Thursday. This was preceded by heavy losses on Wall Street on Wednesday. But in the further course of trading, the German Dax share index recovered and passed the 15,000 point mark again in the early afternoon. After dipping by more than 2 percent to 14,816 points in the morning, the Dax was up 0.3 percent at the close of trading – supported by a recovery on Wall Street – with 15 199.68 points.

The inflation worries were reflected in the bond market in significantly higher yields, which are associated with price losses on debt securities. The yield on ten-year government bonds, which is the reference interest rate for the euro area, rose to minus 0.1 percent, the highest level in two years. In November the market interest rate was still minus 0.67 percent. The yield on ten-year US government bonds also rose to 1.7 percent. At the beginning of the year, the return was still below the 1.0 percent mark.

The euro held up at $ 1.2091 on Thursday. The high US inflation rate of 4.2 percent in April sparked fears that the Federal Reserve might be more likely to raise interest rates. Then bonds would become more attractive again and money from stocks would be shifted there. However, some market participants doubt that inflation could remain in a critical range of between 4 and 5 percent in the long term.