Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
29.9.2023
The past few months have been characterized by central banks around the world repeatedly raising key interest rates, always in the hope of getting a grip on rampant inflation. Although this is gradually succeeding, it also has consequences for the economy in the USA and Europe.
In the USA in particular, the rise in interest rates has caused the economic engine to falter. Several indicators suggest that the US economy is moving towards a recession. For example, an increase in the unemployment rate of at least 0.33 percentage points after the respective cyclical low predicted a US recession, which is currently the case, as is an inverted yield curve. If this has been the case in the past 70 years, a recession has followed (except once) and this is also likely to be the case now. There are also other indicators and they all have one thing in common: they all point towards a recession in the US.
Europe is not in a much better position either, as the money supply there has recently shrunk considerably. In the past, a five percent drop in the money supply growth rate was enough to cause stagnation in the eurozone at least once. We have long since reached this level in Europe.
However, and this is surprising: all these economic warning signals have so far hardly been reflected in the valuation of corporate bonds. Investors in both Europe and the USA continue to believe in the financial stability of companies.
On the stock market, the whole picture is somewhat more differentiated. While they discount German and European equities, US equities are highly valued. This can be seen, for example, in the fact that the German stock market is as cheap as it usually is in times of crisis, while US securities point to a rosy future. As a result, US equities are quite highly valued and corresponding earnings expectations are quite low. With European equities, on the other hand, investors (rightly) expect a significant increase in returns.
All of this shows us that we are very close to the interest rate peak, and we may even be on it. At the latest when US equities fall due to the expected recession, the US Federal Reserve will intervene - and cut interest rates again.
Reinhard Panse's Perspectives
29.9.2023
Reinhard Panse
Interest rates have risen more and more recently. Some indicators now show that the high is likely to be reached soon.
The past few months have been characterized by central banks around the world repeatedly raising key interest rates, always in the hope of getting a grip on rampant inflation. Although this is gradually succeeding, it also has consequences for the economy in the USA and Europe.
In the USA in particular, the rise in interest rates has caused the economic engine to falter. Several indicators suggest that the US economy is moving towards a recession. For example, an increase in the unemployment rate of at least 0.33 percentage points after the respective cyclical low predicted a US recession, which is currently the case, as is an inverted yield curve. If this has been the case in the past 70 years, a recession has followed (except once) and this is also likely to be the case now. There are also other indicators and they all have one thing in common: they all point towards a recession in the US.
Europe is not in a much better position either, as the money supply there has recently shrunk considerably. In the past, a five percent drop in the money supply growth rate was enough to cause stagnation in the eurozone at least once. We have long since reached this level in Europe.
However, and this is surprising: all these economic warning signals have so far hardly been reflected in the valuation of corporate bonds. Investors in both Europe and the USA continue to believe in the financial stability of companies.
On the stock market, the whole picture is somewhat more differentiated. While they discount German and European equities, US equities are highly valued. This can be seen, for example, in the fact that the German stock market is as cheap as it usually is in times of crisis, while US securities point to a rosy future. As a result, US equities are quite highly valued and corresponding earnings expectations are quite low. With European equities, on the other hand, investors (rightly) expect a significant increase in returns.
All of this shows us that we are very close to the interest rate peak, and we may even be on it. At the latest when US equities fall due to the expected recession, the US Federal Reserve will intervene - and cut interest rates again.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
