A strengthening US economy is leading market analysts to expect further rate hikes in the future while further hikes in the Eurozone, together with a technical recession in Germany, weighed down the stock market yesterday. The Chinese economy is suffering from a lack of further stimulus.
Since the week started with a holiday in the United States, market activity was low yesterday.
After weeks of advances, US index futures that were only traded in the morning fell on Monday as a result of a technical corrective move. Anticipation of future interest rate hikes after the Federal Reserve (Fed) pressed pause on its hike cycle at its previous meeting also contributed to the decline in these futures to some extent. Analysts believe that future rate hikes will be necessary since the US economy's data, particularly those related to the labor market, show strength that persists even after the monetary policy has been tightened.
In Europe, the declines were steeper and spread to all industries except banks and energy companies.
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Expectations about interest rates in the Eurozone are still rising with a large part of the voting members of the Governing Council of the European Central Bank in favor of continuing with rate hikes, as stated yesterday by the Governor of the Bank of Ireland, Lane, who assumed a 25-bps hike at the next meeting while leaving the possibility open for further hikes in September.
The high level of inflation, troubling economic data, and the technical recession in Germany and the euro zone are putting pressure on the stock market. These expectations of a more restrictive monetary policy are also contributing to this. Yesterday's daytime decline on the German DAX index was about 0.80%.
Unfulfilled expectations of more Chinese stimulus in Asia caused tech companies to decline, bringing the Hang Seng Index lower.
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The lack of strength of the Chinese economy, according to the latest published economic data, with declines in import figures, industrial production and domestic consumption, is another factor that is negatively influencing Europe, since China is the main destination of European exports.
Sources: Bloomberg, Reuters