Macroeconomic situation

Rather volatile financial markets

The international stock markets were restrained at the start of 2010 because of the consolidation caused by the failure of economic indicators from the USA and from Europe to live up to expectations. Not until the beginning of March did positive corporate data, significant growth in global demand and continued low interest rates trigger a short but significant recovery in the stock markets. Nonetheless, the stock markets were unable to benefit from the increasing momentum of the economic recovery in the second quarter. Concerns about the stability of the euro and the fear of payment difficulties, especially in Greece (but also in other countries of Europe's periphery), dampened sentiment. However, the rescue package instituted for the short term by the EU and IMF for highly indebted eurozone countries as well as efforts towards budget consolidation in most eurozone countries gradually had a calming effect on the markets.

After the turbulence of the first six months, the stock markets experienced relative calm in the third quarter. This easing was partly based on the fact that the recommendations of the Basel Committee on Banking Supervision for equity regulation in the context of Basel III turned out to be less strict and provided longer transition phases than were initially assumed. Another positive signal was the satisfactory performance of most European banks in the stress tests of the European banking regulatory agencies. In the fourth quarter, the stock markets again demonstrated robust performance against the backdrop of sustained low interest rates, good economic data and in part very good corporate data.

Prime rates and money market rates continue at historic lows

The interest rate decreases implemented as part of the economic recovery packages produced historically low interest rates worldwide again in 2010. Already in 2008, the USA had reduced its prime rate de facto to zero in order to secure refinancing of the banks. As in 2009, there was no change in this level in 2010. The same applies to the ECB's main refinancing rate which was lowered to 1.0% in 2009 and was not raised in 2010. Money market rates, which increased somewhat over the course of the year compared to the rate at year-end 2009, are still at a historically low level. For instance, the rate for the three-month EURIBOR at the end of 2010 was 1.03%. The one-month rate was 0.81% and continued to be clearly lower than the prime rate.

Bond yield performance in the reporting period was heavily dependent on the development of the debt crisis in the eurozone, which led to uncertainty again and again, and accordingly to volatility. Yields at year-end 2010 in both Europe and the USA continued to be below the figures for year-end 2009, which were already at historic lows after the slump of 2008. After some significant declines in the early months of the year, the trend was finally reversed to a certain degree, at least in the longer term segment, although at a lower level.

The exchange rate trend of the euro was also strongly influenced by the debt crisis in 2010. After having started the year at rates of €1.45 to the US dollar, the common currency rapidly declined to just under €1.20 per USD 1.00, this having been triggered by events in Greece. The slide did not stop until the EU and the IMF agreed on the rescue package for ailing euro countries. Between June and October the US dollar came under noticeable pressure due to the slowdown of the US economy with the result that the euro climbed back to €1.42 per USD 1.00 in early November before the debt crisis in the eurozone again became more critical. After Ireland was also forced to accept financial aid, concerns about a widening of the problems spread to Spain. As a result, the common currency declined again to €1.34 per USD 1.00 by year-end.