German Stocks in Breakdown Mode

German stocks joined other world indices with a sharp fall on Thursday after the Bank of England and European Central Bank hiked interest rates. 

The ECB even delivered a more hawkish tone in the face of stubborn inflation, enough to sink the recent stock rally. 

GER30 – Daily Chart

GER30 – Daily Chart

The GER30 index peaked above the 14,500 level and dropped below 14,000. The index needs support there, or it could move to 13,200. 

The ECB said on Thursday that it would start selling around 15 billion euros in bonds each month to raise interest rates, reduce the money supply and rein in inflation. Quantitative tightening is seen as weighing on near-term economic growth as stimulus dries up. 

The ten-year bond benchmark moved higher across the 19-nation euro currency zone due to their dependence on bonds to finance debt. The most highly indebted countries suffer the most. 

Yields for Italian debt rose 29 basis points to 4.14% after the ECB, while in Greece, they surged 14 basis points to 4.18 percent. In Italy, Thursday’s announcement was worsened by news from the Bank of Italy, which revealed that the country’s public debt hit 2.77 trillion euros at the end of October. That was a 1% monthly gain and the highest level ever recorded. 

Governing Council member Klaas Knot also said that the US Federal Reserve is closer to the end of rate hikes than the ECB. 

“The US is closer to the end point in terms of raising interest rates than we are, but we have more rate hikes to go. So part of the difference will disappear. My prediction is we won’t close the gap entirely because the problem is deeper rooted in the US than in Europe, as the American economy and job markets are really overheating,” Knot said.

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