Financial markets gradually recovering
The year 2009 also brought significant recovery to the prices on the world’s stock markets. The start of the year was still heavily marked by the financial crisis, with share prices falling worldwide, often to reach historic lows. Added to this were regular negative reports on economic data from numerous countries as well as pessimistic predictions by economic research institutes. Nevertheless, the expansion of the stimulus packages and state guarantees started by many countries in 2008, better economic data and low prime rates produced a slight market recovery toward the end of the first quarter, which continued into the second quarter.
Good mid-year results from US companies and the statement by the Chairman of the Federal Reserve that the American economy had probably come through the recession noticeably rejuvenated the stock markets in the third quarter. Higher than expected economic data from many countries as well as the announcement by the ECB that it would provide additional liquidity supplied continued positive momentum. Toward the end of the year, the positive economic news spread, creating still more impulses. This more than compensated for concerns that the central banks would raise interest rates and worries about the growing risks being taken on by national governments.
Prime rates and money market rates at historic lows
The interest rate decreases implemented as part of the economic recovery packages produced historically low interest rates worldwide again in 2009. Already in 2008, the USA had reduced its prime rate de facto to zero in order to secure refinancing of the banks. This level remained unchanged in 2009 as well. The ECB lowered its main refinancing rate – which was already reduced to 2.5% in 2008 – further to 1.0% in four steps. The money market interest rates also fell sharply in the year 2009. For instance, the rate for the three-month EURIBOR at the end of 2009 was just 0.70%, the one-month rate was 0.45%. Both were therefore significantly below the prime rate.
In 2008, bond yields had fallen to their lowest values both in the euro zone and in the USA in the face of interest reductions by the Fed and the ECB as well as the increased risk aversion of investors; however, they recovered somewhat toward the end of 2009. The main factors were the more positive economic data and the associated expectation of rising inflation rates.
The euro gained 3.9% over the US dollar compared with the rate of the previous year, but exhibited significant fluctuations over the course of the year. A decline to just over 1.25 USD in March was followed by a phase of nearly constant gains that reached the area of 1.51 USD. Only toward the end of the year did the rate fall again to close the year at 1.44 USD.
