No reason to panic

The recent collapse in the stock markets confirms expectations that the year 2018, which is likely to bring further interest rate hikes by the US central banks and the first steps towards normalization of monetary policy in the eurozone and Japan, will be accompanied by sharp fluctuations in prices.

Slightly higher wage and inflation data in the USA have been sufficient to trigger new interest rate fears.  It is gradually being accepted that the period of largely unlimited market support through monetary policy is coming to an end. In fact, a normalization of monetary policy will inevitably be accompanied by interest rate hikes on the capital markets, but central banks also have ways and means of preventing excessive losses in bond prices. For this reason, no fundamental revaluation of equities and other risk-weighted assets is required solely because of interest rate expectations. Their valuation rather hinges on future growth of the global economy. The slight rise in interest rates will not put an end to this growth.  Central banks should not be deterred from their normalization course and should give inflation expectations a stable anchor. The greater danger is that the economic cycle will cause prices and price expectations to rise sharply and that the central banks will have to intervene hard.  If this is not prevented, the latest share price developments can be seen as a foretaste of future turbulence.

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Dr. Michael Heise

Allianz SE
Phone +49.89.3800-16143

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