ZEW Forecast Survey January 2007 – Banking Experts: Lack of Dynamism on the Stock Market, Euro Remains Strong

The first quarter of the new year is not expected to bring about any strong price movements on the German and European stock markets. Leading financial market analysts of German banks interviewed in the course of a quarterly survey by the Centre for European Economic Research (ZEW) in Mannheim rather estimate a sideways movement of the benchmark indices DAX, DJ Stoxx 50 and TecDAX on a three-month horizon.

For the end of the first quarter of 2007, the 17 participating institutes forecast, on average, a slightly weaker reading of 6,563 points for the DAX, 3,726 points for the DJ Stoxx 50 and 738 points for the TecDAX. The price forecasts for the coming six months turn out to be more positive, albeit similarly cautious: the analysts expect a level of 6,620 points for the DAX, 3,768 points for the DJ Stoxx 50 and 750 points for the TecDAX. However, the estimations of the interviewed banks, particularly those regarding the DJ Stoxx 50, diverge significantly indicating an increased nervousness on the market.

Until the end of the quarter, the interviewed banks expect the short-term interest rates (three-month Euribor) in the euro zone to increase to 3.82 per cent. The long-term interest rates (yields on 10-year government bonds) are estimated to drop to 3.81 per cent by the end of the quarter.

According to the analysts, there will be a rise in the value of the euro against the US dollar (1.33 US dollar per euro) by the end of March. The same trend is expected for the coming six months.

The evaluation of the forecasting quality of all three and six-month predictions provided by the 17 banks between June 2001 and December 2006 shows that the benchmark remains unbeaten in the overall ranking. The benchmark for exchange rates and interest rates is the value from the previous three or six months and the benchmark for shares is the long-term trend update. 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 third 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 still leads the overall ranking of trend forecasters, followed by Commerzbank and Bayern LB.

Contact

Gunnar Lang, Phone: +49(0)621/1235-372, E-mail: lang@zew.de