It was a dismal week for global equity markets, and the DAX index fell 2.2 percent. The Frankfurt index is closed on Monday as we head into the Christmas holiday.
It’s been a grim December for stock markets, and the DAX has plunged 7.8 percent, after a 6.7 percent slide in October. The freefall means that the DAX is on track for its worst year since 2008, at the height of the financial crisis. The DAX gave up over 2 percent last week, as investors were soured by the Federal Reserve rate statement.
Investors had expected a rate hike last week, but had hoped for some “compensation” in the form of a dovish rate statement, given the turmoil in equity markets and signs that the U.S. economy may not be able to continue its red-hot performance. Instead, policymakers maintained plans to continue raising rates. Most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two. Just a few months ago, there was talk of a “rate hike every quarter” for 2019, but the Fed has made a U-turn in monetary policy. The policy of gradual rate hikes bears much of the responsibility for the volatility in the markets, and the message from the Fed that more hikes are coming will likely mean that the volatility will continue in December and into the New Year.
Aside from the disappointment in the Fed, there are plenty of headaches for investors as we head into the New Year. Eurozone growth is down, as the manufacturing and export sectors have lost steam due to the prolonged trade war between the U.S. and China. The
There are also internal worries, most notably the Brexit negotiations. Prime Minister May was forced to shelve a parliamentary vote on the withdrawal agreement with the EU earlier in the month. The vote will take place in mid-January, but if parliament shoots down the deal, European markets could head south.
