market report
The prospect of further rate hikes by the Federal Reserve did not create buying sentiment midweek. The DAX and Dow retreated further.
Jerome Powell’s speech to the US Congress left little to be desired in terms of clarity. The Fed chair explained that there is “a long way to go” to reach the 2.0% inflation target. Nearly all MPC members agreed that further rate hikes should be appropriate before the end of the year.
This clear signal of further rate hikes is no longer a surprise in itself, following the statement made after the last rate decision, but it is not suitable to boost the already somewhat depressed stock market. Still, Powell’s suggestion that a more dovish pace of rate hikes might make sense allowed prices to recover. In the end, the Dow Jones Industrial Average edged down 0.3%.
Technology stocks, which are more sensitive to interest rates, are under more pressure. The Nasdaq 100 fell 1.35%.
Affected by Powell’s speech, the DAX index closed down 0.55%, near the low of the day. Jürgen Molnar, market expert at RoboMarkets, commented on the current situation: “As long as the market is above 16,000, the traffic light for the German stock index will remain green.” Skepticism is growing.”
New forecasts for the German economy have had a negative impact on the German retail sector. The ifo institute expects gross domestic product (GDP) to fall by 0.4% this year, thus surpassing the spring forecast (-0.1%). Meanwhile, growth forecasts for the coming year were cut to 1.5 percent from 1.7 percent. The biggest headwind this year may be private consumption, as high inflation means many consumers have lost significantly more purchasing power.
In currency markets, the euro was boosted by a statement from Federal Reserve Chairman Jerome Powell that a more dovish pace of interest rates might make sense. The European common currency climbed to the 1.10 euro mark.
Oil prices rose sharply. In the evening, the price of a barrel of North Sea Brent crude oil was US$77.07, up 2.1% from yesterday. The listing benefited from a weaker dollar. Crude oil is mainly traded in US dollars. Therefore, a weaker dollar supports demand. Oil prices were also stabilized by efforts by the Chinese government and central bank to support the economy, according to traders.
Papers for Volkswagen, BMW and Mercedes-Benz in the DAX index got a temporary boost from the latest registration data. The EU automotive market continues to grow owing to high demand for electric vehicles. New registrations of all drive types rose 18.5 percent to nearly 1 million units in May, according to ACEA, the European manufacturers’ association. Electric vehicle sales are up more than 70%.
There were also positive reports from China. The country will extend until 2027 some tax breaks for consumers buying new electric vehicles. The move follows a series of measures to boost sales and production in the world’s largest electric vehicle market.
Volkswagen received special attention. The automaker hopes to increase sales by 5% to 7% annually through 2027. At the same time, capex and R&D costs should drop significantly. The DAX Group announced at its investor day that the investment rate should fall below 11% of sales by 2027.
This year, Wolfsburg plans to spend 14.5 percent of the proceeds on capital expenditures. Chief executive Oliver Blume wants to make better use of currently underutilized factories by making more products for different brands simultaneously in various locations. The group’s high investment rate has long been criticized by investors. Operating results should increase due to lower investments. While VW has recently targeted a group return on sales of 8% to 9% in the medium term, it should reach 8% to 10% now by 2027. Plan saving also comes into play here.
Bloom explained at the event that the group wanted its disputed factory in China’s Xinjiang province to be scrutinized by independent auditors. “We are planning a transparent, independent external audit to provide full transparency to the public,” the chief executive said.
Postal shares fall after FedEx data
A disappointing earnings outlook for U.S. parcel service provider FedEx also weighed on Deutsche Post shares. Her shares fell 2.5 percent. FedEx’s fiscal fourth-quarter profit fell. Markets said results were hurt by weak demand, which overshadowed planned cost cuts. One trader said the FedEx development was a bad sign for competition from Europe.
Lufthansa was one of the strongest performers on the MDAX. The airline is selling its payments specialist AirPlus to Swedish bank SEB for 450 million euros. “Following the agreements reached in April on the sale of the LSG Group and more recently on the ITA stake, the sale of AirPlus is the next important step in the Lufthansa Group’s strategy to focus on its core business globally. The future,” said Lufthansa CFO Remco Steenbergen Said. The sale is expected to have a positive impact on Lufthansa’s operating margin and return on capital.
Shares of SGL Group fell more than 6 percent on the SDAX. It is a response to a possible capital increase. SGL has secured new financial resources through convertible bonds worth approximately EUR 120 million. Proceeds will be used to reduce debt and refinance existing bonds. The new bonds are said to be convertible into up to 12.2 million shares, representing a capital increase of about 10%. Subscribers also included major shareholder Skion, the holding company of entrepreneur Susanne Klatten, who eventually held a 28.5 percent stake.
Cancom shares rose in the afternoon. The IT service provider expects to buy back its own stock within the next 12 months. The company announced that it will acquire as many as 3.85 million of its own shares on the market from July 3 to the end of June next year. Currently up to 9.92% of the share capital will be purchased through the stock exchange.
Ailing real estate investor Adler Group should stay in business. At an extraordinary general meeting in Luxembourg, shareholders voted to continue operating the company. While the company still hasn’t found an auditor for the 2022 balance sheet, board members have been fired. The heavily indebted Adler Group avoided bankruptcy only with concessions from its creditors. “Adler is moving towards a new normal,” said board chairman Stefan Kirsten. The restructured group will be smaller in scale, with a clearer organizational structure and a more focused business model.
Austrian-Romanian energy group OMV Petrom is developing a large gas field in the Black Sea. OMV announced that the recoverable natural gas volume of the “Neptun Deep” gas field is 100 billion cubic meters. OMV Petrom will invest up to EUR 4 billion in the project over the next few years. “Neptun Deep” will be one of the largest gas projects in the EU. The first gas is expected to flow in 2027. OMV Austria holds a 51% stake in the company.