ZEW Forecast Survey October 2006 – Banks Do Not Expect Year-end Rally of Stock Indices

A further significant increase of DAX and DJ Stoxx 50 is apparently not to be expected until the end of the year. Analysts of German banks, questioned on a quarterly basis by the Centre for European Economic Research (ZEW), Mannheim, assume a sideways movement of both share indices in the coming three months.

The 18 banks participating in the survey estimate a reading of 6,047 points for the DAX and 3,605 points for the DJ Stoxx 50. Similar price developments were forecasted for the coming six months. In this context, the analysts expect a level of 6,097 points for the DAX and 3,645 points for the DJ Stoxx 50. However, the banks' estimations partly diverge considerably indicating an increased nervousness on the market.

Until the end of the year, the interviewed banks expect the short-term interest rates (three-month Euribor) in the euro zone to increase to 3.62 per cent. The long-term interest rates (yields on 10-year government bonds) are estimated to grow to 3.86 per cent by the end of the year.

According to the analysts, the value of the US dollar against the euro will drop from 1.27 to 1.30 US dollar per euro in the coming quarter, thus favouring the euro. On a six-month horizon, an exchange rate of 1.31 US dollar per euro is expected.

The evaluation of the forecasting quality of all three and six-month predictions provided by the 18 banks between June 2001 and September 2006 shows that the benchmark (for exchange rates and interest rates: value from the previous three or six months, for shares: long-term trend update) remains unbeaten in the overall ranking. In terms of forecasting short-term interest rates, the TecDAX and the US dollar to euro exchange rate, some banks performed better than the benchmark. In the overall ranking of point forecasters, Dresdner Bank remains first, followed closely by Commerzbank and DekaBank.

In addition to the point forecasts, trend forecasts of the participating banks have been analysed for the second time now. The results suggest that the forecasting quality for short-term interest rates is on a very high level regarding both point and trend forecasts. The forecasting quality concerning DAX and TecDAX has proved surprisingly high. Hamburger Sparkasse leads the overall ranking of trend forecasters, followed by Commerzbank and Bayern LB.

Contact

Gunnar Lang, Phone: +49/621/1235-372, E-mail: lang@zew.de  

Dr. Michael Schröder, Phone: +49(0)621/1235-140, E-mail: schroeder@zew.de