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Due to global supply bottlenecks and rising commodity prices, the industrialized countries are in many cases recording the highest rates of price increases in years. High producer prices also point to noticeable background inflation, which could further increase the pressure on already rising consumer prices. At the same time, the growth momentum of the global economy has slowed and could come to a complete halt if disruptions in global supply chains continue. In a worst-case scenario, this could result in a stagflation scenario characterized by declining corporate profits and - in response to higher inflation rates - rising interest rates. In this case, there would be negative consequences for both equity and bond markets. Only a few market segments such as energy stocks, financials and commodities would then be available for portfolio hedging.
The fragility of recent weeks shows that the markets have in part begun to price in the stagflation scenario. However, since stagflation has played virtually no role in the recent past, market participants lack the experience to react appropriately to this development. This increases the risk of fear-driven reactions and thus abrupt corrections in the near future. In addition, the market breadth on the global stock exchanges has decreased. In the event of increasing selling pressure, the equity markets would therefore have little resistance.
Despite the tense market situation, there are still good prospects for a year-end rally on the stock markets. The current inflationary pressure and weak growth are to a large extent the after-effects of the delta virus variant that has been rampant since the summer. New cases of corona in China, for example, have led to port closures in recent months, which have placed a considerable burden on global supply chains and industrial production. Consumption also suffered noticeably from the delta virus variant. Since late summer, however, the global Covid 19 situation has eased noticeably. This improves the prospects for the resumption of largely smooth trade in goods and increased industrial production before the end of the year. If economic growth and consumption rise in the months to come, a conciliatory end to the year on the markets is quite possible.