Status: 05/31/2022 18:04
Interest rate and inflation worries that flared up again ended the most recent interim recovery in the DAX today. Above all, the high price of oil continues to weigh heavily on investors’ stomachs, who are becoming more cautious.
After the last four days of winning in a row, the Frankfurt stock market went down again today. The leading index DAX increased its losses in the afternoon and ultimately fell by 1.29 percent to 14,388 points. The daily low was 14,359 points, the high was 14,547 points. After economic hopes had recently boosted the DAX, everyday life returned today with high inflation figures from the euro zone. Above all, the energy prices, which are still climbing, are fueling investors’ fears of inflation again and again.
Euro inflation at 8.1 percent
The return of inflation concerns caused disillusionment among stock market bulls. Because inflation is in the euro zone in May at a high 8.1 percent. A brand that the markets and especially the ECB cannot ignore. Already the German inflation was in May according to the estimate published yesterday by the Federal Statistical Office at 7.9 percent in a similarly dizzying amount.
Above all, the high energy prices continue to act as a driving force. “The recent rise in the price of oil puts fears of inflation back on the agenda due to rising energy prices,” stated analyst Jochen Stanzl from CMC Markets. The oil prices climbed to their highest level in a good two months on Tuesday, also fueled by the EU embargo plans against Russia.
Experts agree that something has to be done quickly to combat inflation. “The rapid increase in energy prices leads to increasing costs for the companies that pass them on to their customers,” said economist Bert Colijn of ING Bank. Larger rate hikes by the ECB of half a percentage point no longer seemed impossible, said Commerzbank analyst You-Na Park-Heger. However, this is not their base scenario.
“I don’t understand why the ECB wants to wait until the end of the third quarter to abolish its negative interest rates. Every new inflation figure shows how risky this hesitation is,” says Jörg Krämer, chief economist at Commerzbank.
Perhaps the hesitation won’t last too long. French central bank governor Francois Villeroy de Galhau said May’s inflation figures reinforced the European Central Bank’s plans to exit very loose monetary policy. “Progressive and consistent monetary policy normalization” is necessary, he said.
Wall Street is struggling
The recent interim recovery on the New York stock exchange is also over for the time being. All major indices remain in the red but have pared some of their losses after better than expected consumer confidence. The private research institute Conference Board determined a decline of 2.2 points to 106.4 points for May compared to the previous month. That was less than analysts had predicted in advance.
The leading index Dow Jones, which had given way around 1.2 percent at the opening, is currently 0.6 percent in the red. The other indices are also recovering somewhat and are losing by the same amount.
Biden meets Powell
Of course, the topic of the day remains the interest rate debate, which received fresh impetus yesterday. It shows that even within the Fed, opinions are divided between those who are calling for stronger interest rate hikes and those who want to proceed more cautiously.
The US leading index only managed the largest weekly increase since 2020 last week. Bargain hunters grabbed it again and used the supposedly cheaper prices after the slide from the end of April to mid-May to get started. Signals from the US Federal Reserve, which investors had taken as evidence of only a gradual tightening of US monetary policy, also helped here.
Against this background, stockbrokers eagerly awaited the meeting between US President Joe Biden and Fed Chairman Jerome Powell in the evening (Central European Time). The two want to discuss inflation and its consequences. Biden pointed to the Fed’s responsibility in combating inflation and emphasized that he did not want to unduly influence central bank decisions.
Embargo drives up oil prices
The oil prices, which have risen again, are having a particularly negative impact on the markets. They reached their highest level in over two months today. The prospect of a reduced supply from Russia as a result of new sanctions from the European Union because of the Ukraine war is acting as a price driver. “The last thing the stock market needs right now is a price explosion in the area of 140 or 150 US dollars,” comments Jochen Stanzl, chief market analyst at CMC Markets.
A barrel of the North Sea variety Brent rose by a good 1.2 percent to around $123, the US light oil variety WTI costs around 0.4 percent more at $117. The EU countries had agreed on a compromise in the dispute over the planned oil embargo against Russia. At Hungary’s insistence, only Russian oil deliveries by sea are to be stopped for the time being.
Euro weaker again
The euro paid tribute to its recent rally this afternoon. The common currency costs 1.0722 US dollars, around 0.5 percent less than on the night. The European Central Bank set the reference rate at 1.0713 (Monday: 1.0764) dollars.
Statements by Fed Governor Christopher Waller on Monday afternoon were still echoing, as traders explained the euro’s losses. Waller spoke out in favor of further major interest rate hikes: “I support a policy tightening by another 0.50 percentage point at several meetings.”
The US Federal Reserve should continue interest rate hikes at this rate until inflation approaches the target value of two percent again. Waller sits on the Fed’s governing body and has a say in monetary policy. The high interest rates in the USA have been driving the dollar for some time and, in turn, are weakening the euro.
Raid on Deutsche Bank and DWS
The headquarters of Deutsche Bank and its subsidiary DWS are searched. A spokeswoman for the public prosecutor’s office in Frankfurt confirmed the corresponding media reports. According to the “Handelsblatt”, the searches are related to the so-called “greenwashing” allegations against the asset manager DWS. “We have continuously and extensively engaged with all relevant regulators on this matter and will continue to do so,” said a DWS spokesman. Deutsche Bank referred to DWS’ statement and said: “The actions of the public prosecutor’s office are directed against unknown persons in connection with greenwashing allegations made against DWS.”
DWS hit the headlines last year after allegations were made that the asset manager was too lax with the criteria for “green” investments and had so-called “Green washing” operated. DWS has always denied the allegations.
Operationally still on course
Meanwhile, Deutsche Bank got off to a good start in the second quarter in its key investment banking business. “If we look at the second quarter, we are actually quite happy with the development,” said Deutsche Bank board member Fabrizio Campelli at an event organized by the money house.
Many of the trends from the first quarter continued into the second quarter. This applies in particular to the bond and currency side of the business. In the corporate bank, a strong development can be seen “across all business segments”. Campelli is responsible for the investment bank and the corporate bank on the Deutsche Bank Board of Management.
“Deutsche Bank is clearly well on track to meet the 2022 targets,” Campelli said. Among other things, Germany’s largest financial institution is aiming for an after-tax return on tangible equity (ROTE) of eight percent this year.
Vitesco and Infineon cooperate
The automotive supplier Vitesco is strengthening its electromobility business with a cooperation with the semiconductor manufacturer Infineon. This is about silicon carbide power semiconductors, Vitesco announced in Regensburg. These semiconductors made a significant contribution to the efficiency of electronics for up to 800 volts, thereby increasing the range of electric vehicles. Financial details of the cooperation were not given.
Foxconn expects improvement in supply chains
The Apple supplier Foxconn expects the supply chain problems to ease in the second half of the year. “We are quite confident in the stability of our supply chain for the second half of the year,” said Foxconn CEO Liu Young-way. Foxconn aims to become the first electric vehicle (EV) maker “that is not short of material supplies,” Liu said, citing the global semiconductor shortage. The Taiwanese company aims to capture around 5 percent of the global electric vehicle market by the end of 2025 and hopes to increase its capacity to manufacture EV chips.
Lanxess acquires division of Dutch DSM with Advent
The specialty chemicals group Lanxess, together with the financial investor Advent, is taking over the plastics business of the Dutch chemical company DSM for around 3.7 billion euros. This is to be incorporated into a new joint venture in which Advent will hold at least 60 percent and Lanxess will hold up to 40 percent, as the Cologne-based group announced. Lanxess will also transfer its business with high-performance polymers, which are mainly used in the automotive industry, to the joint venture and will receive a payment of at least 1.1 billion euros.
Credit Suisse wants more capital
According to insiders, the crisis-ridden Credit Suisse is examining measures to strengthen capital. The considerations are at an early stage, two people familiar with the situation told Reuters. One option is a capital increase. Such a transaction would probably take place in the second half of the year. According to the insiders, the bank not only wants to pad the balance sheet with a capital increase, but also wants to send a positive signal to the outside world. Because if well-known investors gave the bank fresh capital, that could be seen as a vote of confidence.