Retail investors are pulling more than €1 billion a month from real estate funds in Europe, with slumping demand and a surge in borrowing costs raising concerns about commercial propertyvaluations.
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Market development from our perspective – January 2024
Market development from our perspective - January 2024
By mid-year, a turning point in the financial markets might occur
As 2024 has so far been favorable for high-risk investments. Economic data, especially in the United States, have mostly exceeded expectations, and the global disinflation trend remains intact. The current environment resembles an “optimal” scenario, benefiting both companies and central banks, thus favoring the stock market.
The positive trend for stocks is expected to continue for now, supported by fundamental and technical factors. Global stock markets could reach new highs. However, government bond yields might increase in the short term before the inflation data for February leads to stabilization. A volatile sideways movement for government bonds is likely.
The favorable environment for risk investments may not last throughout the year. A regime change is expected by the summer, although its direction is still uncertain. A potential slowdown in U.S. growth in the second half of the year could also impact the Eurozone, while companies might struggle to raise prices, reinforcing the disinflation trend.
In case of an economic slowdown, central banks could lower interest rates to a neutral level, but not much lower. Government bond yields might slightly decrease unless there’s a significant downturn in the global economy.
A possible baseline scenario for stock markets foresees a slowdown in the global economy without a recession. However, prospects could worsen as analysts might have to lower their optimistic profit estimates, exacerbated by high valuations of tech stocks, excessive optimism, and one-sided positioning.
Other high-risk investments have also seen significant gains recently, but uncertainty about the global economy might trigger a reversal. In the event of a U.S. recession, negative impacts could be limited, especially for conservative bonds.
A significant risk scenario is that the U.S. economy proves more resilient than expected and that restrictive monetary policy measures do not take effect. This could lead to rising inflation rates before the U.S. Federal Reserve has little incentive to ease its monetary policy.
In the risk scenario, stocks could come under pressure, while high-quality corporate bonds might hold up. Winners could include commodities and inflation-indexed government bonds.
Overall, uncertainty in the financial markets is high, necessitating careful observation of economic development and flexibility in strategy.
In conclusion, it can be said that, after a strong start to the year, stocks might come under pressure, supported by both our baseline and risk scenarios. Potential headwinds could come from a slowdown in economic growth or renewed inflation concerns. The outlook for government bonds is more complex: in the event of a global economic slowdown, yields could continue to fall, while in the risk scenario of an inflation boom, the opposite could occur. There is a high uncertainty about being caught off guard this year. Especially for government bonds, careful observation of economic development and great flexibility in strategy are necessary.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.
interesting news
Netflix Documentary Exposes Centra Tech Crypto Scam
In a recent documentary titled “Bitconned,” released on Netflix, viewers are provided with a comprehensive exploration of the dark underbelly of the cryptocurrency world, unveiling a tale of deception, fraud, and the ominous rise of dubious crypto ventures. The documentary spotlights Centra Tech, one of several high-profile crypto scams that emerged in recent years, revealing the intricate web of deceit that allowed the company to amass millions of dollars daily.
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Market development from our perspective – December 2023
Market development from our perspective – December 2023
Moderate Growth Meets Exaggerated Rate Cut Fantasies
Global Economy
Global economic activity continues on a downward trend. . Current surveys indicate that we can expect moderate global growth until 2024. The monetary tightening of recent years is beginning to impact Western economies with the expected delay. The gap between the manufacturing and services sectors is narrowing. Although the manufacturing sector shows signs of improvement, it continues to contract, while the pace of expansion in the services sector is beginning to slow.
Growth differences between regions remain significant. The US economy, while slowing, continues to exhibit solid data, and the prospects for a “soft landing” in 2024 are improving. In contrast, the Eurozone faces a challenging environment with rapid growth deceleration. China’s economic outlook is improving thanks to strong policy incentives, but the real estate sector will continue to weigh on the economy in 2024.
Inflation saw a rapid decline in the second half of 2023. However, it is far too early to expect a smooth disinflationary path towards the central banks’ 2% target. Despite the absence of supply shocks related to the pandemic, geopolitical tensions, protectionism, and persistent fiscal policy measures continue to generate inflationary pressures. Faced with falling prices, central banks find confirmation in their cautious and wait-and-see stance of the last two quarters.
There is no doubt that the reference interest rates of major Western central banks have reached the peak of the cycle. However, the number of expected rate cuts by 2024 seems exaggerated, considering the inflation target has yet to be met and the significant possibility that the neutral interest rate level may be higher than in the pre-pandemic period. Chinese monetary policy will remain expansive to support fiscal stimuli. Only the Japanese central bank may tighten next year.
USA
After a very strong third quarter, the US economy lost momentum in the fourth quarter. Although recent US data indicate weaker growth and falling inflation due to restrictive monetary policy, there are no signs of an imminent recession. For the fourth quarter of 2023, healthy GDP growth of 2.3% is still expected.
The labor market presents a mixed picture, but there are no signs of collapse. While the number of jobs created continues to decrease, the unemployment rate has dropped to a four-month low of 3.7%. Consumers remain confident and continue to support economic expansion. Retail sales have increased thanks to more relaxed financial conditions and solid personal incomes.
The disinflationary trend continued: total inflation fell to 3.1% due to lower energy prices, while core inflation remained at 4% due to persistent price pressure in the services sector and rents.
Although the slowdown in inflation is positive, we doubt a rapid return to the 2% inflation target given the strength of the labor market, consumer resilience, and expansive fiscal policy in an election year. The Fed confirmed its policy in December as expected, but surprised markets by announcing the start of discussions on rate cuts. Given the upcoming US presidential elections, there is suspicion that central bankers have prioritized preventing a recession over controlling inflation. Given the current growth forecast and the three announced rate cuts, of which the market expects up to six by 2024, it is clear to us that inflation will not reach 2%.
Eurozone
Despite a slight improvement in November, growth in the Eurozone in the fourth quarter remained disappointing. The private sector contracted for the seventh consecutive month in December, increasing the risk of a technical recession in the second half of the year.
Weak global demand has affected the entire Eurozone, and industrial production has fallen to its lowest level since 2020. Germany is particularly affected by a further decline in industrial orders and production. Overall, the data indicates more of an economic stagnation than a cyclical collapse. Even in the first half of 2024, growth will continue to slow and remain at low levels. Unemployment stabilizes at 6.5%, and consumer confidence consolidates at very low levels. Although retail sales and foreign demand weaken, the manufacturing sector shows the first signs of improvement.
Price pressure dropped significantly in November to 2.4% year-on-year, but remained high in the services sector at 4%. Core inflation also decreased significantly from 4.2% to 3.6% year-on-year. Since this is still well above the desired target and PMI indices continue to signal steady cost pressure and wage growth across the Eurozone, the disinflation process is far from complete. The ECB’s tightening cycle has concluded.
However, the central bank president signaled that, unlike the Fed, the ECB is not yet ready to discuss rate reductions. The market significantly overestimates future rate cut actions, expecting up to six steps. Much is at stake for European policymakers: a premature rate cut in a context of rigid inflation and continuous fiscal stimuli would be mistaken. Maintaining restrictive policy for too long could lead to further economic slowdown. The question is how much patience and determination the ECB can show in the face of uncertainty and a potentially less restrictive Fed. It is a fact that the last step towards the 2% inflation target will be the most complicated and may require further economic pain.
China
China’s economic recovery continued at a moderate pace in the fourth quarter. Exports slightly increased in November, while imports decreased due to the persistent weakness of the real estate sector. However, the economy remains in a deflationary context: both overall inflation and producer prices are negative year-on-year (-0.5% and -3%, respectively). The credit situation improved in the last quarter thanks to extended state measures to promote credit growth.
At the last meeting of the year in December, the Politburo committed to “effectively promoting economic recovery and achieving adequate qualitative growth”. There is no doubt that fiscal policy will be the engine to stimulate economic growth until 2024. However, there are no signs of extended fiscal incentives, but rather further targeted measures. Monetary policy will provide flexible and effective support, albeit cautious. Prospects for China appear slightly more positive than in previous months, but the recovery will remain gradual, and the real estate sector will continue to be a problem, clouding economic prospects until 2024.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.
interesting news
Fed holds rates steady, indicates three cuts coming in 2024
The Federal Reserve on Wednesday held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond.
Own cognitions
Market development from our perspective – November 2023
Market development from our perspective - November 2023
Interest rate levels seem to have peaked, making further increases by central banks increasingly unlikely.
Government bond markets saw significant gains in November as expectations for further rate hikes by central banks diminished. Inflation has recently slowed, leading central banks to adopt a wait-and-see approach.
Inflation in the Eurozone in November was at 2.4%. Specifically, the reduction in energy prices contributed to tempering inflation rates, while food and service prices continue to face upward pressure. Although the US economy appears surprisingly strong, Europe is in recession. Some optimists believe that rates in Europe could be the first to decrease next year. However, it’s important to remember that the US is traditionally seen as a pioneer and reference market for interest rate trends. At the same time, the Eurozone must be careful not to cut reference interest rates too quickly to avoid further weakening the euro, which could lead to imported inflation, especially in the energy sector.
For bond investors, the described change has the positive effect of improving the yields of existing bond investments. After the crisis year of 2022, a return to positive yields, albeit at a modest level, is expected for 2023. The REX index, which tracks the performance of a portfolio of German government bonds of various maturities, shows an increase of 1.6 percent after eleven months. However, this demonstrates that it was not possible to preserve the real value of assets with German government bonds in 2023. The outlook for 2024 is not very optimistic. Ten-year German government bonds currently offer a yield of about 2.4%. Whether the inflation rate will fall below this value next year is uncertain, according to the European Central Bank.
In other respects, too, German government bonds seem unattractive. Il rapporto prezzo/utili (P/E), ottenuto dividendo 100 per l’attuale rendimento, è di circa 41. In comparison, the price/earnings (P/E) ratio of the DAX index is much lower, at around 11. The dividend yield of DAX shares, at 3.5%, significantly exceeds the yield of ten-year German government bonds. Therefore, the main beneficiaries of a possible change in interest rates are more likely to be found in the stock market than in the bond market. It is also foreseeable that in the coming months there will be a high supply of new government bonds, as public debt is increasing everywhere, including in Germany, while the supply of available and new shares tends to decrease. This is due not least to the numerous share buybacks by listed companies, whose number has been declining for years due to acquisitions and delistings. Simultaneously, the number of new issues has been relatively low in recent years.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.
Own cognitions
Market development from our perspective – October 2023
Market development from our perspective - October 2023
It's time to return to disciplined fiscal policy.
It raises concern when politics attempts to address economic challenges with generous financial measures.
The Federal Constitutional Court has set clear limits on the federal government’s borrowing policy with a ruling issued on Wednesday. It dictates that the government cannot use the 60 billion euros allocated for combating the Coronavirus for climate protection funding, but must instead assign them to the Climate and Transformation Fund. According to the Federal Constitutional Court, the second supplementary budget of 2021 does not comply with our Constitution.
The constitutional judges emphasize that the effectiveness of the debt brake must not be compromised. This mechanism is enshrined in the Constitution in Articles 109 and 115 and thus has constitutional value. In summary, this means the federal government cannot spend more money than it collects through taxes. . Revenue from borrowing cannot exceed 0.35 percent of the Gross Domestic Product, plus a “cyclical component”. This way, our Constitution imposes precise limits on new debt accumulation. During the Corona pandemic, the debt brake was suspended until 2020, a measure justified by extraordinary circumstances but should remain an exception.
The most important privilege of the Parliament is to decide annually on the state finances. However, the numerous special budgets erode the Bundestag’s rights. In recent years, these special budgets have significantly increased: 100 billion euros of special assets for the Bundeswehr, 200 billion euros for the Economic Stabilization Fund, 212 billion euros for the Climate and Transformation Fund.
The increase in public debt in Germany is largely due to these special budgets, which the federal government prefers to call “special assets,” though they would more accurately be termed “special debts.” The citizens of this country can no longer rely on the principle of clarity and truthfulness of the budget when the state consistently incurs debts outside the regular budget, which should be prepared annually.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.
interesting news
Can AI Beat the Market? Wall Street Is Desperate to Try
Those seeking to build the perfect money machine are discovering the technology doesn’t always work as planned.
Own cognitions
Market development from our perspective – September 2023
Market development from our perspective – September 2023
Germany's economy is facing considerable challenges, even though it has been economically successful so far in the 21st century.
The slump in the economy, in contrast to the all-time high of the DAX, is exacerbated by the Russian invasion of Ukraine and the interruption of natural gas supplies. This has led to an energy crisis and rising energy costs, which is a particular burden on energy-intensive industries. Russia’s decision to cut natural gas supplies to the EU has led to an energy crisis, causing the cost of natural gas to double. Germany now faces the risk of deindustrialisation due to high energy costs and a lack of government action to prevent production relocations.
The German economy is showing signs of recession as industrial production falls for the fourth month in a row.
The German economy is expected to shrink and forecasts for the coming years are cautious. Structural reforms are necessary, particularly with regard to energy prices, infrastructure and immigration. Despite these challenges, the DAX 40 is trading near its all-time high. However, there are ominous signs on the chart that call into question the sustainability of the current bull market. A possible interest rate increase by the European Central Bank is expected and the economic outlook remains gloomy, even if the index remains stable for the time being.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.
Own cognitions
Market development from our perspective – August 2023
Market development from our perspective – August 2023
Weak August
Concerns about the economy and interest rates: German stock markets have fallen appreciably in the last week. Two main factors have weighed on the mood: On the one hand, China again reported weak economic data and news of further problems in the important property sector. The property group Evergrande has filed for protection from creditors in the USA under Chapter 15. This has made investors more pessimistic about China’s economic development and the consequences for the global economy. On the other hand, robust economic data from the US has provided arguments in favour of continued and prolonged monetary tightening by the US Federal Reserve. The minutes of the Fed’s last council meeting also made it clear that the Fed is keeping its options open for further interest rate increases.
Bonds: Manageable fluctuations: Prices on the German bond markets have fluctuated within manageable limits during the past week. While concerns about the global economic trend have supported the prices of German government bonds, speculation about further interest rate rises in the USA have put them under pressure. Rising yields on US bonds have also weighed on the prices of German government bonds. Finally, the yield on the benchmark ten-year German government bond remained unchanged at 2.62 per cent at the end of the trading week compared to the previous week’s closing level. By contrast, current yield rose from 2.58 to 2.63 per cent.
USA: Scepticism about China US stock markets have recorded losses in the past week. Concerns about further rising and prolonged high interest rates and Chinese economic development have made investors noticeably more sceptical. The Dow Jones index has fallen by 2.2 per cent week-on-week to 34,500.66 points. The broader S&P 500 index has fallen by 2.1 per cent to 4,369.71 points. The Nasdaq 100 index, which is dominated by technology stocks, has fallen 2.2 per cent to 14,694.84 points.
Outlook: After the gloomy previous week, many analysts have become more cautious when it comes to the coming days on German stock markets. In the notoriously weak stock market month of August, burdens are currently increasing, according to reports. Specifically, reference is made to concerns about further interest rate increases in the USA and the Chinese economy.
With regard to monetary policy, market participants are likely to focus their attention on the meeting of international central bankers in Jackson Hole in the US state of Wyoming, which begins this Thursday. Fed Chairman Jerome Powell will be in attendance, and his comments are likely to be closely analysed for possible signals as to how the US central bank will proceed. Although generally no concrete statements are expected, observers assume that Powell will declare that the fight against inflation is not over and will keep the door open for further interest rate rises.
In addition, further developments in the Chinese property sector are likely to be followed with interest. After Evergrande filed for creditor protection in the USA last week, fears are growing that the crisis will spread from the property sector to the financial sector, say observers.
In terms of economic data from Germany and the Eurozone, the Ifo business climate and the purchasing managers’ indices in particular could have an effect on market developments. Incoming orders for durable goods, consumer confidence and inflation expectations are among the indicators from the US which are likely to be analysed in particular for their potential impact on the Fed’s actions.
Companies in Germany have only announced quarterly reports below the top tier of the stock market. However, the figures from chip manufacturer Nvidia in the USA are expected to have a greater general impact. The company’s share price has risen considerably this year in the wake of the boom in artificial intelligence and has had a knock-on effect on a number of sector stocks. This could also apply to the quarterly results due to be published on Wednesday.
Disclaimer: This assessment is not an offer to buy or sell and does not constitute an invitation to buy or sell financial instruments or a personal recommendation (investment advice) in connection with financial instruments. Any general recommendations are an expression of the FI Group’s expectations based on current market conditions. The recommendations are therefore not based on fundamental analytical facts, and thus this assessment alone cannot form the basis for investment decisions. In connection with specific investments, the FI Group always recommends consulting specific advisors. The FI Group recommends that entrepreneurs seek individual advice on current market conditions.
Investments are associated with a risk of financial losses. Neither historical returns and price developments nor forecasts for the future can serve as a reliable indicator of future returns or price developments. The FI Group is not liable for any losses arising directly or indirectly from action taken solely on the basis of this assessment.
The information contained in this assessment is based on sources that the FI Group believes to be reliable. However, the FI Group accepts no liability for defects, including errors in the sources, printing errors or calculation errors or changed conditions.