- Gold and silver in strong demand.
On 18 September, the Fed cut interest rates by 0.5 basis points for the first time in four years and after eleven interest rate hikes. This is a larger interest rate cut than usual, which has also been the case in 2007. The situation is now somewhat reminiscent of 2007/8, when the Fed also cut interest rates by 0.5 basis points on 18 September 2007, leading to the biggest financial crisis in the post-war period in 2008 due to the insolvency of the world’s fifth largest investment bank, Lehman Brothers. Could this happen again?
The stock, commodity and crypto markets rose sharply after the Fed’s interest rate cut, especially on the following day. The DAX rose to a new all-time high of over 19,000 index points on 19 September, and gold also rose to a peak of 2600 USD/ounce on 18 September intraday raday, whereby it came on the day after the interest rate hike to strange price capers with first strong upward movements and then in the last two hours of trading with heavy price losses, which is called an intraday reversal. This affected not only the US dollar, but also stock indices and many commodities such as gold and silver. So there was a fierce fight between the bulls and bears on 18 September. The big question is how sustainable these price increases of 19 September will be.
But the stock markets in Eastern Europe also continue to be a source of joy, especially in the Balkan region (Serbia +29%, Slovenia +32%) and even in Ukraine (+16%), where the war is raging, as well as in Kazakhstan (+23%), which is a good alternative to Russian equities. Investors willing to take risks can purchase shares in Kazakhstan directly online from the Cyprus-based broker Freedom Finance (Freedom Broker) if they open an account there first, which is easy to do using the following link: https://freedom24.com/invite_from/2952896 .
Andreas Männicke also gives his assessment of the new opportunities in Eastern Europe in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 237 at www.YouTube.com.
Crypto markets rose sharply the day after the interest rate cut
After the ECB cut interest rates by 0.25 basis points in the previous week, as expected, the Fed has now also cut interest rates. The question was how large the interest rate cut would be. As many had expected and hoped, it was 0.5 basis points, the same as on 18 September 2007. As in 2007, the stock and commodity markets initially reacted positively for the most part, but the crypto markets such as Bitcoin and Ethereum rose sharply on 18 September, but then fell sharply again, only to rise sharply the following day
On 18 September, Bitcoin rose to 61,000 BTC/USD, but then fell again temporarily by almost 2 per cent to 59,648 BTC/USD, only to rise again by over 4 per cent to over 63,400 BTC/USD on 19 September. Ethereum rose by only 0.55 per cent to 2334 ETH/USD on 18 September, but by almost 6 per cent to 2475 ETH/USD on 19 September. Ripple initially fell by 4 per cent to 0.56 XRP/USD, but recovered again on 19 September by just 1.4 per cent to 0.58 XRP/USD. Ripple thus remains a relative underperformer among the market-heavy cryptocurrencies.
The euro initially rose slightly against the US dollar to 1.1180 EUR/USD, but then consolidated again to 1.1136 EUR/USD. The following day, it also initially rose and then fell again towards 1.11 EUR/USD. Similar consolidations can also be expected soon for stocks and commodities, however, when the initial euphoria has passed and the next real economic data has caused disillusionment to set in. The interest rate level is relatively high despite the 5 per cent interest rate cut by the Fed in the US. Furthermore, inflation may also return. The rate of inflation in the US has recently fallen to 2.5 per cent.
DAX and S&P index reach new all-time highs
The DAX rose by 0.74 per cent to 18,831 index points in the after-hours session following the announcement of the interest rate cut, and on 19 December it even rose intraday to a new all-time high of 19,000 index points. On 18 September, the S&P index initially rose by 0.65 per cent to 5,690 index points, only to consolidate at 5,616 index points in the last two hours of trading, which ultimately even meant a minus of 0.34 per cent. On 19 September, however, it rose sharply by almost 2 per cent to over 5,700 index points, which also meant a new all-time high.
On 18 September, the NASDAQ Comp. Index rose from 17,650 to over 17,800, but then consolidated again at 17,600. The following day, the NASDAQ Comp. Index opened with a huge gap at 17,960 index points, and then rose to over 18,050 index points, which represents a price increase of 2.75 per cent over the previous day. Many traders even made losses due to these strong price fluctuations, but AI stocks such as Nvidia (+5 per cent to 119 USD) were in demand again.
Are the ‘golden times’ beginning now?
After the interest rate cut was announced, gold also rose sharply by over 1 per cent to 2600 USD/ounce, which meant a new all-time high, but then fell to 2550 USD/ounce in the last few hours of trading, only to recover to over 2580 USD/ounce the following day. On 18 September, silver rose initially by 1.61 per cent to 31.15 USD/ounce, only to fall back to 29.8 USD/ounce in the last few hours of trading. The following day, silver stabilised again at 30.8 USD/ounce, with the market opening with a gap.
Gold has a good chance of reaching a new all-time high if interest rates continue to fall in the future, which is to be expected. Gold is already clearly outperforming most stock markets, although the crypto markets have outperformed even more strongly, with Bitcoin doubling in price, for example. So now the ‘golden days’ may just be beginning.
Most industrial metals also benefited from the interest rate cut on 18 September, such as copper, which rose only slightly by 0.53 per cent to 9572 USD/tonne. The big price jump did not occur until 19 September, however, with a plus of 1.75 per cent to over 9700 USD/ounce. By contrast, Brent oil initially weakened further on 18 September to 73 USD/barrel, because OPEC wants to expand oil volumes from October. However, Brent oil also rose by over 3 per cent to 75 USD/barrel the following day.
Bond markets surprisingly weak after interest rate cut
However, this interest rate cut was expected by most investors. As a result, both the Euro-Bund future and the T-bond future initially fell slightly, so that bond yields even rose slightly in the long-term segment. The inverse interest rate structure is now reversing, which is a bad sign for the future of the stock markets and the economy.
Is the situation now similar to 2007/8?
Is everything back to normal now? Investors should not become too complacent. The situation is somewhat reminiscent of 18 September 2007, when the Fed also cut interest rates far too late, but by 0.5 basis points, with the result that the following year, 2008, saw the insolvency of the world’s fifth largest investment bank, Lehman Brothers. At that time, it was only the intervention of the state that prevented a global financial collapse, with the result that countries around the world had to take on additional debt. Are we facing something like that again?
At the time, the US federal funds rate was also above 5% and there had also been a long-standing bull market in the stock markets. There was also an inverse interest rate structure, which then dissolved, which is also a risk factor for the stock markets. In the coming months, everything will depend on how the economic data turns out. So far, the scenario prevailing on the market is a ‘soft landing’ in the US, i.e. a slowdown in the economy, but no sharp recession.
When there are recessionary tendencies, interest rate cuts have a negative impact on stock markets in retrospect
But be careful: in the case of a real recession, an interest rate cut does not have a positive effect on the stock markets, but a negative one, as in 2000/2001 and 2007/8. However, the situation now also resembles the situation in 1987, when there was a crash in October. Whenever the inverse interest rate structure dissolves, it can lead to a recession and a bear market in the following year. This is precisely the case now. In addition, the M2 money supply is falling in relation to the GDP, which is another warning signal, because liquidity will later be in short supply on the stock market. However, there is still enough liquidity.
Geopolitical risks are ignored
The high geopolitical risks are still being ignored, both in the case of the war in Israel and the war in Ukraine. But both wars could escalate further, even leading to a Third World War if we are not careful and do not react calmly. In both cases, this would then be Joe Biden’s responsibility. In Israel, there is a threat of the war spreading to Lebanon, with terrible atrocities being committed on both sides, but also by Israeli intelligence.
Russia is arming itself for World War 3?
Authorising long-range missiles for Ukraine, which then also target destinations directly in Russia, could be the wrong approach because Russia would then be at war with NATO, at least according to Putin’s understanding. It remains to be seen how sharply Russia will react if long-range missiles are actually used. The US has not yet authorised the use of long-range missiles, but this may still happen. Putin has increased the size of the army by 180,000 to 1.5 million by decree. Almost 700,000 contract soldiers are already deployed in Ukraine.
Second Trump assassination attempt raises security questions again
The election campaign between Trump and Harris is now also becoming increasingly fierce. This was the second assassination attempt on Trump, raising the question of whether Trump is being guarded well enough and whether he will even survive until the election. If he is killed before the election, there will be a shock on the stock market, because Harris is not Wall Street’s preferred candidate due to the planned tax increases.
BRICS countries are growing
On 23 October, the BRICS Plus countries will meet in Kazan (Russia), where Turkey – a NATO country – wants to join the BRICS, which is geopolitically not without controversy. The BRICS are clearly positioning themselves against the US dollar and the USA, under the leadership of China, which will also be an exciting investment topic in the future.
Eastern European stock markets remain outperformers
The stock markets in Eastern Europe also benefited to some extent from the interest rate cut, with the Balkan region in particular continuing to perform well. Even the UTX index for equities from Ukraine rose by 2 per cent to 45 index points on 18 September, which means a price increase of 17 per cent since the beginning of the year. But shares in Serbia also rose by 1 per cent and have gained 28 per cent since the beginning of the year. The SETX index for shares in South-East Europe is still up 17 per cent since the beginning of the year, which is far better than the DAX. The KTX Local Index for shares from Kazakhstan rose by 0.44 per cent to 2039 index points after the interest rate cut, which means a price increase of 24 per cent since the beginning of the year. However, Poland and the Czech Republic are now suffering from the flood of the century.
Freedom Broker offers market access to Kazakhstan
You can also buy shares in Kazakhstan directly online through the Cyprus-based broker Freedom Finance, which has the advantage of quickly crediting the sometimes very high dividends to your account. For example, Halyk Bank even has a dividend yield of 16% and a return on equity of 34%. At Freedom Broker, you can also get interest rates of over 8% on your USD savings account and over 6% on your euro account. It is easy to open a counter-account online using the following link: https://freedom24.com/invite_from/2952896 If you still need advice on exchanging Russian ADR for original shares, Freedom Broker, which also has a branch in Berlin, is also the right place to go.
Freedom Broker also allows investors to buy Russian ADR at discount prices on the OTC market. A similar service is available from the Cyprus-based broker Zerich Securities Ltd, where you can open an account via the following link: https://trade.mind-money .eu A list of tradable Russian ADRs is published in the EAST STOCK TRENDS stock market letter (www.eaststock.de). Both brokers also offer the opportunity to participate in lucrative IPOs on Wall Street, as well as high returns on overnight and fixed-term deposits.
Inform yourself first, then invest
Find out now in detail about the background and development of the Ukraine/Russia crisis, but also the future recovery potential of undervalued stocks from Eastern Europe. There are also new opportunities in the Baltic states, Southeastern Europe and the CIS republics (Kazakhstan, Georgia), with the respective stock indices all up in 2023. In 2023, 12 stock markets from Eastern Europe were among the 30 best-performing stock markets in the world, with 5 clearly outperforming the DAX. In 2024, 9 stock markets in Eastern Europe outperformed again with a strong plus. So it’s still worth taking a look beyond your own backyard to Eastern Europe.
So order a trial subscription now (3 issues by email for only €15) of the monthly market letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special, as well as a lot of background information and new investment suggestions such as the ‘share of the month’ and lucrative certificates at www.eaststock.de, there under Börsenbrief. The last EST appeared on 16 September 2024.
TV/radio references: On 5 February 2024, Andreas Männicke was interviewed by Carola Ferstl in Money Talk about gold, commodities and the new opportunities in Eastern Europe. All radio and TV interviews can be downloaded from the video archive at www.eaststock.de, including the latest video on EastStockTV, episode 236. By the way: have you already subscribed to the EastStockTV YouTube channel?
If you are interested in new ‘Go East’ seminars in Frankfurt and other cities, please contact the EST editorial team (www.eaststock.de ).
You can now also order the free newsletter from Andreas Männicke with the latest news about the world and Eastern stock markets at www.eaststock.de.