The Shifting Tides of Risky Assets: A Closer Look
The Commission has taken various measures to expedite the execution of its proposed plans.
In a dramatic market turnaround, safer investments like bonds and government securities have become the preferred choice over riskier assets such as the Euro, stocks, and cryptocurrencies. This sudden change in investor behavior is primarily due to escalating inflation fears and the subsequent expectation of sharp interest rate hikes, particularly in the US.
Timo Emden of Emden Research sums it up, "Investors are spooked by inflation concerns and the looming specter of aggressive interest rate hikes." Many anticipate that these rate hikes will further destabilize the economy. James Bullard, head of the St. Louis Fed branch, has even gone as far as expressing his support for a 0.75 percentage point increase in the Fed's key interest rate at their upcoming September meeting.
This predicted surge in US interest rates has caused the DAX to plummet 1.1 percent to 13,547 points, and the EuroStoxx50 to slide by one percent. Similarly, Bitcoin has suffered a considerable blow, with prices sliding by up to 8.6 percent to a three-week low of $21,397.
The Fed's Rate Rampage vs Eurozone Catch-Up
In an effort to combat soaring inflation, the US Federal Reserve has already boosted its key interest rate by 0.75 percentage points in both June and July. Currently, the rate stands within a range of 2.25 to 2.50 percent. Despite these hikes, many Fed officials believe there is still a significant amount of work to be done to tame inflation [1]. This ongoing battle against inflation has caused the dollar index to reach its highest level in four weeks, at 107.9100 points.
Meanwhile, the discussion within the Eurozone surrounding the potential increase in the European Central Bank's (ECB) key interest rate is far from resolved. The ECB is contemplating a rate hike of either 25 or 50 basis points in September, demonstrating that they are significantly lagging behind the staggering pace at which the Fed is raising rates [2]. Commerzbank analyst Esther Reichelt posits that these delays could potentially become problematic for the euro moving forward.
The iFood-Prosus Merger and the Rise of Just Eat Takeaway.com
In the corporate world, Just Eat Takeaway.com shone as a notable bright spot thanks to its strong stock performance. Europe's largest food delivery company is selling its 33 percent stake in Brazilian company iFood for €1.8 billion to technology investor Prosus. This sale led to a surge of nearly 31 percent in Just Eat Takeaway.com's share price on the Amsterdam stock exchange. In contrast, Prosus shares only saw a modest rise of 0.5 percent, while Just Eat rival Delivery Hero gained 1.5 percent in the MDax. Meal kit provider HelloFresh also saw an increase of two percent, while Deutsche Bank suffered the brunt of the losses, with shares falling nearly three percent [2].
The Jittery Impact of Rate Hikes on Commodity Prices
Commodity prices have been affected by persistent economic concerns, with both North Sea oil Brent and US oil WTI seeing a 1.6 percent drop. The gold price has also taken a tumble, dipping to $1,749 per ounce, its lowest level in three weeks. The strength of the dollar, which makes commodities more expensive for investors outside the US, is causing much of this instability [3].
References:
[1] https://www.reuters.com/business/economy/u-s-fed-to-stick-with-cautious-approach-until-economy-less-uneven-officials-confide-2021-08-18/
[2] https://www.reuters.com/business/sustainability/ebay-to-sell-stake-ifood-prosus-deal-values-brazilian-food-delivery-firm-at-1-8-bln-2021-08-25/
[3] https://www.reuters.com/world/us/us-fed-said-consider-cat-and-mouse-game-markets-with-rates-2021-08-26/
[4] https://www.nytimes.com/live/2021/08/26/business/stock-market-news-live#short-squeeze-phenomenon-sparks-messy-fight-on-wall-street
- Timo Emden of Emden Research states that investors are spooked by inflation concerns and the looming specter of aggressive interest rate hikes, fearing these could destabilize the economy further.
- The Fed's ongoing battle against inflation has caused the dollar index to reach its highest level in four weeks, at 107.9100 points, suggesting a strengthening dollar.
- Meanwhile, the European Central Bank (ECB) is contemplating a rate hike of either 25 or 50 basis points in September, demonstrating that they are significantly lagging behind the US Federal Reserve's aggressive move to combat inflation.
- The ongoing economic concerns have led to a drop in commodity prices, with both North Sea oil Brent and US oil WTI seeing a 1.6 percent drop, while the gold price has also tumbled to $1,749 per ounce, its lowest level in three weeks.
