market report
Status: 10/13/2022 10:14 p.m
Wall Street has reacted to the latest inflation data with wild price jumps. After an initial disappointment, however, investors grabbed it again. Could the worst be over soon?
The New York Stock Exchange was busy today. The leading index Dow Jones fluctuated violently between 28,660 and 30,168 points, and the other major US stock indices were similar.
The Dow ended trading at 30,038 points, a significant daily gain of 2.83 percent. The tech-heavy Nasdaq gained 2.23 percent, while the Nasdaq 100 index index advanced 2.30 percent. The market-wide S&P 500 index gained 2.6 percent to 3669 points.
In the meantime, it was not at all looking like these clear gains, because the latest inflation figures initially sent shock waves through the market and caused heavy losses. But investors shook off their worries more and more over the course of the year.
The initial sell-off was a bit overdone, said Shawn Cruz, chief investment strategist at brokerage firm TD Ameritrade. He thinks it’s a good sign that there are no follow-up sales. However, Craig Erlam, market analyst at brokerage house Oanda, warned against declaring a trend reversal. “This is really not an inflation report you want to see.”
Hoping for the interest rate plateau
Specifically, consumer prices rose by 8.2 percent in September compared to the same month last year, according to the US Department of Labor. Experts had expected an average of 8.1 percent. In August, the inflation rate was 8.3 percent.
Core inflation, which ignores the fluctuating energy and food prices and is the particular focus of the Federal Reserve (Fed), even rose from 6.3 to 6.6 percent. This rate was also above market expectations. The upward pressure on prices points to further strong interest rate hikes by the US Federal Reserve, which has already raised its key interest rate significantly this year. Another hike of 75 basis points is considered a foregone conclusion on Wall Street.
“After this inflation data there is probably no one left who believes the Fed can raise interest rates by less than 0.75 percentage point at their November meeting,” said Seema Shah, chief investment strategist at wealth manager Principal Global. Should the price pressure remain so high, the fifth step of this magnitude in a row must be expected in December.
So that’s exactly what the coming weeks should be about: will the price pressure remain high, or is there a clearer flattening out, so that the Fed can take a slower pace?
Walgreens convinced
Among individual stocks, shares of Dow member Walgreens Boots Alliance rose sharply 5.35 percent following the release of fourth fiscal quarter results. The pharmacy chain reported a roughly 32 percent decline in adjusted earnings per share from continuing operations. But that was slightly better than analysts had expected on average. Sales also remained just above the average expert estimate. Daily winners in the Dow were JPMorgan papers, which gained more than five percent.
Initial applications slightly higher than expected
The situation on the US labor market has meanwhile clouded over again slightly in the past week. The number of initial applications for unemployment benefits increased by 9,000 to 228,000. It is the second increase in a row. Analysts had expected an average of only 225,000 applications. Although the numbers are rising slightly, the labor market remains very robust. The Fed has no need to be considerate and can concentrate fully on fighting inflation.
DAX rides a roller coaster
A volatile trading day ended on a positive note on the domestic stock market today. After previously violent fluctuations, the DAX increased by 1.51 percent and closed at 12,355 points, just below the daily high of 12,379 points. The day was all about new US inflation data. The US inflation data from September initially met with little approval on the stock exchange and pushed the DAX to its daily low of exactly 12,000 points.
Just as turbulently as the data had gone down, the index then rallied, following a recovering Wall Street. The high fluctuations, as expressed in such a V formation, are usually an expression of great nervousness on the part of investors.
Deutsche Bank at the top of the DAX
Significantly higher interest rates drove Deutsche Bank to the top of the index among the individual stocks in the DAX. Because higher interest rates drive the important interest margin of the financial institutions. Flavor manufacturer Symrise was at the end of the index, even as the T-Share, which is considered defensive, bucked the trend.
Continued high inflationary pressures in the US
The US inflation data, which had been eagerly awaited in the run-up, signaled only a slow decline in price increases and thus fueled new interest rate fears. “The rise in the core rate has again accelerated significantly. It is therefore still worryingly high. In order to regain control of the inflation process, the Fed must continue to use the crowbar. At the beginning of November, it will raise the key interest rate sharply by 75 basis points for the fourth time in a row “, comments Bastian Hepperle from Hauck Aufhäuser Lamp.
After the inflation data, it is clear that the US Federal Reserve will raise interest rates a fourth time by 0.75 percent in early November, as portfolio manager Thomas Altmann of QC Partners said, but the data also has a positive side. “The annual rate has fallen for the third month in a row,” said Altmann. At least the direction is right, even if the path is much flatter than hoped. And Thomas Gitzel, economist at VP Bank, said: “The outlook for further inflationary developments certainly allows the conclusion that most of the Fed’s work is done.”
Reporting season begins
Another determining factor for the direction of the stock markets is likely to be the start of the US reporting season. “A positive trend could certainly trigger a Christmas rally. If the trend is disappointing, the lows for the year should be tested again,” says Thomas Altmann from asset manager QC Partners.
Oil price turns positive
The price of oil also increased in the wake of the rising stock markets. There had been price losses on the oil market over the past three trading days. Most recently, concerns about a slowdown in the global economy and an associated drop in demand had put pressure on oil prices, after the International Monetary Fund (IMF) reduced the forecast for global economic growth.
The fact that the oil cartel OPEC expects weaker oil demand also caused a bad mood. The organization thus subsequently provided a reason for the significant production cut that the larger OPEC+ group had made last week.
Euro recovers from interest rate shock
There were also major movements on the foreign exchange market. The prospect of further massive rate hikes by the Fed initially drove the dollar before giving back its gains against the euro. The euro is currently trading at $0.9773 in US trading. When the inflation data was published, the common currency had fallen to $0.9633. The European Central Bank then set the reference rate at 0.9739 (Wednesday: 0.9706) dollars.
pounds recovering
The exchange rate of the British pound has meanwhile risen significantly by almost two percent after reports of an imminent further U-turn by the British government in its tax policy. The British currency, which had recently come under severe pressure, rose sharply against the US dollar to 1.1315 dollars by late evening. In the morning the course was still below 1.11 dollars.
New Prime Ministers Liz Truss and Finance Minister Kwasi Kwarteng had already scrapped part of their sweeping tax reforms after loud protests. Contrary to what was initially planned, the top tax rate will remain at the previous level. The plans weighed heavily on the pound and pushed up bond market yields. The Bank of England had to intervene at short notice to stabilize the market for government bonds, so-called Gilts.
Nagel for “robust rate hike”
According to Bundesbank President Joachim Nagel, the European Central Bank (ECB) should raise interest rates sharply at its upcoming meeting in view of persistently high inflation. Although the size of the interest rate increases depends on the current data, Nagel said today at a joint press conference with Federal Finance Minister Christian Lindner at the fall conference of the International Monetary Fund (IMF) in Washington.
The latest data is clear and clearly points in the direction of a “robust rate move,” he added. Getting inflation under control is the top priority. The next ECB interest rate meeting is October 27th.
Siemens helps ACC build and operate battery factories
With the European battery manufacturer ACC, Siemens has won one of its largest customers to date for its new hardware and software platform Xcelerator. According to this, Siemens will be the “preferred supplier” for automation, digitization and electrification of the two to three factories for electric car batteries that the Automotive Cells Company (ACC) is planning in Europe.
ACC is owned by the car manufacturers Mercedes-Benz and Stellantis and the French oil and energy group TotalEnergies with a third each. The company has seven billion euros available to build “giga factories”.
Easyjet expects stable demand
British low-cost airline Easyjet expects demand to remain stable in the winter and next summer, despite the impact of high inflation on consumption. “We face the uncertain macroeconomic environment with many strengths,” said airline boss Johan Lundgren. The increasing demand for flights in the summer of 2023 makes him confident.
Ticket sales for the autumn holidays and the Christmas season are going better than before the outbreak of the corona pandemic in 2019. An offer of 20 million seats is planned for the current first quarter of the financial year – that would be 30 percent more than in the same period last year, albeit only 83 percent of the pre-crisis capacity .
IAG on the up
Surprisingly strong business figures gave IAG the biggest price jump in seven months. The shares of the British Airways parent are now rising by almost ten percent in London. According to preliminary figures, the airline made an operating profit of 1.2 billion euros in the past quarter. In addition, no decrease in demand can be observed.
Since US rival Delta and low-cost airline EasyJet made similar statements, the index for the European tourism industry rose by 4.4 percent. Lufthansa also rose significantly in the MDAX.
Südzucker earns more
Südzucker made a jump in profits in the first six months of the 2022/23 financial year. With an increase in sales of 29 percent to 4.624 billion euros, the operating result (Ebitda) rose to 465 (previous year: 278) million euros. Consolidated earnings reached EUR 316 million after EUR 134 million in the previous year. The increase in profits was borne by the biofuel subsidiary CropEnergies and the areas of sugar and starch. The Executive Board therefore raised its expectations for sales for the year as a whole.