The monetary tightening initiated in 2022 has not yet changed the fact that eurozone real interest rates are still negative. As an asset class, the attractiveness of stocks as a form of real investments seems set to persist at least as long as firms are in the position to pass on cost inflation to their customers. During the first weeks of the year, this has enabled a stock market rallye which, however, began losing steam in the course of February.
Inflation rates decreased somewhat in early 2023. However, early indicators as well as recent wage agreements are hinting at a rather slow and bumpy disinflation process which will be mainly driven by statistical base effects. While the ECB’s monetary statement in January has been somewhat less hawkish than the one dating back to December, many members of the ECB Monetary Council have tried to deliver more restrictive signals in their speeches and interviews since. On 27 February, Christine Lagarde said to the Indian Economic Times: „There is every reason to believe that we will do another 50 basis points in March. After that, we will see. We are data dependent. (…) We need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2%, and to keep rates there for as long as necessary to be confident that inflation returns to 2% in a timely manner. That's the mantra.“ For the US, the FOMC Minutes of January 31 stated that interest rates had to be increased further and to be left on an elevated level, „until inflation is clearly on a path to 2%“. Interest rate expectations were also lifted by quite robust data from the labour markets, adding to a certain disillusionment of stock market participants.
For investors, a careful selection of regions, industries and firms has become more crucial now than during general upward trends. In this context, the ATX is offering some major advantages: A positive start of the earnings season, high weighting of financial industry stocks benefiting from higher interest rates, high dividend yields that are still higher than the eurozone’s long-term benchmark yields and low price/earnings ratios, indicating some leeway for catching-up to international standards. However, under the current economic and geopolitical conditions, stock prices including the ATX will probably be subject to repeated set-backs in the course of the year.
Senior Research Analyst
VOLKSBANK WIEN AG
2 March 2023
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.