market report
The DAX reacted surprisingly well to today’s rate hike. As ECB President Christine Lagarde announced further rate hikes, it didn’t go well initially. However, over time, the market began to recover.
The DAX rallied on the year and followed Wall Street higher after investors initially grappled with the ECB’s latest interest rate decision. Finally, Germany’s leading index closed at 16,290 points in an eventful year, only slightly down 0.13%.
The index initially fell to a session low of 16,165 after the rate decision before recovering again. The closing price was also close to the daily high of 16,301 points, one step closer to the record high of 16,336 points set yesterday. Therefore, despite the possibility of further rate hikes by the ECB, the DAX remains very strong.
A decision is expected today to increase another 25 basis points to 4.00%. However, ECB President Christine Lagarde’s unequivocal stance on further rate hikes shows where the bank is headed in the interest rate cycle ahead. Because the Eurozone is still a long way from the ECB’s inflation target of 2.00%.
“We have a good chance of further rate hikes in July,” Lagarde said after the rate decision. “We’re not there yet.” She mentioned high inflation. The central bank even raised its inflation forecasts, which experts saw as the real surprise of the day. This is the eighth consecutive rate hike. The next ECB rate meeting is scheduled for July 27.
“The ECB has given a clear signal to continue raising rates,” explained Alexander Krüger, chief economist at Hauck Aufhäuser Lampe Privatbank. Instead of getting tired, she remained sober about the inflation outlook.
On top of that, the closely watched core rate, which excludes volatile energy and raw material prices, is only slowly starting to weaken. It was 5.3% in May, which is still too high.
Size is an important decision-making basis for the European Central Bank and the Federal Reserve. If it stays that high, it would suggest that inflationary trends persist and there is a risk that currency depreciation will continue. Central bankers want to prevent this at all costs.
“The ECB is currently doing a convincing job of regaining lost trust,” said Friedrich Heinemann of ZEW, a research center in Mannheim. Despite the poor economic outlook, she Still continuing to raise interest rates, indicating that restoring price stability is a top priority.
Turning to the economic outlook: “Dark clouds are gathering on the economic horizon,” HSBC market strategists led by Amit Shrivastava wrote in a study published today, skeptical about European stocks.
Core inflation remains stubborn, and according to the bank’s economists, the central bank is still some way away from peaking in its rate hike cycle. They are critical of future earnings trends for European companies, reducing the likelihood of further price increases.
At the same time, according to HSBC’s cash flow assessment, the automaker’s “European love affair” is coming to an end. Funds trimmed positions in Europe, with global institutional cash near record highs.
The German Institute for Economic Research also assumes that the economy will shrink by 0.2%. The DIW announced today that the recovery that has begun will no longer fully cover losses. The Kiel research institute IfW expects a growth rate of -0.3% this year, thus lowering its spring forecast (+0.5%). The Essen-based economic research institute RWI also forecast a 0.3 percent drop.
Major U.S. stock indexes meanwhile extended gains after an initial cautious start. The leading index, the Dow Jones, is now up more than one percent. After yesterday’s setback, he continued his winning streak. Buyers also returned to the rate-sensitive Nasdaq market. The composite index rose 0.8%. The broad market S&P 500 index rose 0.9%.
As expected, the Fed paused interest rates yesterday. Similar to the ECB today, Federal Reserve Chairman Jerome Powell will further adjust interest rates based on data. The market is currently pricing in two more 25 basis point hikes.
Monetary policy left a positive mark on Chinese technology stocks listed in New York on Thursday. The fact that China’s central bank is trying to help the country’s flagging economy by cutting key interest rates sent shares of Amazon’s rival Alibaba up 2.7%.
Stock market heavyweight Apple is back on the road to success today. The paper has risen about 1% year to date to $185.96, an all-time high. The stock is currently trading just below that level.
Investors are also reacting to interest rate decisions in the foreign exchange market. The prospect of further rate hikes by the European Central Bank is pushing the common currency higher against the dollar. The current price is $1.0932. The European Central Bank (ECB) last set the reference rate at $1.0809 on Wednesday afternoon, with today’s midpoint at $1.0819. At the start of the week, the euro was worth less than $1.08.
U.S. economic data was also weaker. Both industrial production and industrial capacity utilization were lower than expected in May.
The yen, meanwhile, is suffering from speculation of further U.S. rate hikes, with bank boss Jerome Powell keeping it open despite a pause in rates. The yen fell to its lowest level in seven months.
The Fed’s relatively dovish stance stands in stark contrast to the policy of the Bank of Japan (BoJ), which has recently kept monetary policy accommodative even as most of the rest of the world has been tightening. That weighed on the yen, as higher interest rates tend to support a currency. The Bank of Japan will announce its interest rate decision on Friday, ending the “central bank week”.
Siemens has announced multibillion-dollar investments in factories and research in Asia, the US and Europe. It will cost 200 million euros to build a high-tech factory in Singapore to produce automation technology, adding 400 jobs. The factory in Chengdu, China will be expanded by 140 million euros, while creating 400 new jobs. In addition, the group announced that it will announce further investments in Europe and the United States during the year.
Shares of Atoss Software fell today following reports of a massive stake sale by major shareholders. About 20 percent of the share capital will be transferred from majority shareholder AOB Invest to investor General Atlantic – which represents a 12.8 percent discount to the volume-weighted average price over the past six months.
Fashion group Hugo Boss has raised its medium-term targets as its growth plans progress faster than expected. Chief executive Daniel Grieder now expects sales to reach 5 billion euros by 2025, rather than doubling to 4 billion euros. At the same time, operating results should amount to 600 million euros, not around 480 million. For operating return on sales (earnings before interest and taxes), the previously forecast 12 percent is now the minimum target.
Bad weather slowed sales growth at clothing chain H&M in the second quarter. As announced by Hennes & Mauritz (H&M), revenues rose by 6% compared to the same period last year to SEK 57.6 billion (approximately EUR 5 billion). In local currency terms, sales even stagnated at the previous year’s level. H&M explained the development of relatively unfavorable weather in several important regions.
In a London court case against Credit Suisse (CS) over Mozambique’s so-called “tuna bond” scandal, lawyers for the UBS bank have asked for the lawsuit to be dismissed, the Financial Times (FT) reported. A fair trial was impossible because the Mozambican government had not disclosed any documents. The case is about CS’s role in providing more than $2 billion in loans and loans to African countries, including the cost of building a tuna fishing fleet. However, funds have apparently been “misappropriated” on a large scale.
With the acquisition of Credit Suisse, which closed earlier this week, UBS also took on a wide legal legacy. According to the Financial Times, the High Court in London will start civil proceedings in September over the “tuna bonds”. In 2021, CS paid $475 million in fines in settlements with US, UK and Swiss regulators.