market report
The sides are high. Ahead of the central bank’s imminent decision, Germany’s DAX was little changed despite a flood of fresh company reports. Things will get even more exciting after the U.S. stock market closes.
Despite the deluge of new business data emerging from the corporate sector, investors are still hesitant to invest today. At the close, the DAX index closed at 16,211 points, up slightly by 0.1%. This means that the German leading index is still high, but not enough for further gains at the moment. Overall, the DAX traded within a manageable trading range between 16,135 and 16,225. The mid-cap index MDAX inched up 0.35% to 28,297.
“Hope of less restrictive monetary policy is keeping investors in equities for now, even if the economic outlook is not rosy,” said Jürgen Molnar, a strategist at brokerage CMC Markets. With U.S. and euro zone central bank decisions due later this week, investors’ wait-and-see attitude is not unusual.
Specifically, the market is initially waiting for the Fed’s interest rate decision tomorrow, and is ready to raise interest rates by 25 percentage points.
Experts say the European Central Bank (ECB) may raise interest rates by another 0.25 percentage points on Thursday. “As long as the world’s most important central bank continues to hit the brakes, investors will not expect any leap in economic growth,” said Jochen Stanzl, a market analyst at brokerage CMC Markets.
Although interest rate hike expectations are still there, investors have begun to pay attention to the central bank’s further monetary policy measures after interest rates peaked. The course of inflation will play a decisive role here, as rate cuts are unlikely as long as price increases do not approach the 2.00% target range set by the major central banks.
Meanwhile, U.S. corporate earnings season is heating up with the start of earnings from top-rated tech giants, usually the highlight of earnings season. The likes of Microsoft and Google parent Alphabet are due to report quarterly results today after the close in New York, and tomorrow it will be Facebook parent Meta’s turn. In addition, many other heavyweights are also opening their books, so as the week progresses, plenty of numbers are coming, including numbers from Europe.
Meanwhile, major U.S. stock indexes rose, suggesting U.S. investors were more confident than domestic investors ahead of the Fed decision. At noon local time, tech stocks were up about 0.6%, with the leading index, the Dow Jones, now inching higher.
The support for the stock market today comes from China. Chinese leaders have pledged to step up support for the economy amid a slow recovery from the coronavirus crisis, with a focus on boosting domestic demand. HYCM analyst Giles Coghlan said rhetoric from the ruling Communist Party’s Politburo was “market music”. “The problem now is that when it comes to what is actually delivered, the details make the difference.”
The talking point on Wall Street so far has been new data on the corporate sector ahead of the market open. Two Dow members also reported with 3M Group and telecom giant Verizon, among others. Both reports were well-received, and stocks both rose. 3M even tops the Dow, not least because of its more confident management outlook.
Spotify, the market leader in music streaming, gained significantly more new subscribers than expected in the past quarter. Spotify remains heavily loss-making due to higher music industry taxes, among other factors. The company is currently offsetting this by raising prices in many countries. Germany is temporarily exempt from this restriction.
Spotify’s quarterly revenue rose about 11% year-over-year to nearly $3.2 billion. He fits the prophecy. The final loss was $302 million, compared with a loss of $125 million a year earlier. The stock is falling sharply.
Reports from automaker General Motors are now positive after a bumpy start. After a big jump in profits, GM expects business to be better than usual again this year. Company boss Mary Barra now expects a net profit of $930 to $10.7 billion (up to €9.6 billion) in 2023, rather than $840 to $9.9 billion.
In the second quarter, GM’s sales rose by a quarter year-over-year to $44.7 billion. All told, profit attributable to shareholders rose by half to nearly $2.6 billion. GM has already raised its annual forecast after the first quarter.
The euro was under pressure ahead of central bank decisions, but in the meantime was off daily lows. Currently paying $1.1051, so only slightly down. Headwinds for the euro today in particular from Germany’s weak ifo index. The ECB set the reference rate at 1.1051 (Monday: 1.1096) USD.
Meanwhile, oil prices remain elevated and are currently up about one percent. The current price of North Sea Brent crude oil is 83.54 euros per barrel. That pushed prices to their highest level in three months.
German economic sentiment deteriorated again in July. ifo business climate index fell 1.3 points to 87.3 points. It was the third straight decline in the economic barometer. Economists typically interpret three consecutive declines as a recession. Analysts on average expected a smaller decline of 88.0 points. “The economic situation in Germany is getting darker,” comments ifo president Clemens Fuest. Some 9,000 companies surveyed see the current situation as significantly worse, while future business prospects are only slightly weaker.
The International Monetary Fund (IMF) slightly raised its forecast for the development of the world economy, but Germany was an exception among major economies. The IMF further downgraded its forecast for the Federal Republic of Germany: According to this, the German gross domestic product (GDP) will shrink by 0.3% in 2023.
Better economic data than Germany comes from the US. U.S. consumer confidence was better than expected in July. The Conference Board, a market research organization in Washington, announced that consumer confidence rose 6.9 points from the previous month to 117.0 points. This is the highest level since July 2021. Analysts had expected the average to be just 112.0. Both the assessment of the status quo and expectations have improved significantly.
The leader in the DAX was Adidas, whose shares rose nearly 4 percent. The sporting goods company raised its profit forecast overnight. The blame lies with better-than-expected sales of its “Yeezy” line of inventory. Adidas once launched them with scandalous rapper Kanye West. The company announced last night that its current expected loss for 2023 should be lower. Adidas expects this year’s operating results to be negative 450 million euros, previously expected to be 700 million euros.
On the other hand, the downside was evident in the papers of Munich-based engine maker MTU, which fell more than 6% to add luster to the DAX’s close. Several Airbus medium-range A320neo family aircraft will have to undergo unscheduled maintenance in the coming months due to engine defects.
Raytheon Technologies, parent company of engine manufacturer Pratt & Whitney, announced today in East Hartford (USA) that a significant portion of the PW1100G-JM engines may require accelerated dismantling and inspection over the next nine to 12 months. How many machines there are cannot be quantified at first.
MTU was also involved in the development of the drives, and about a third of the drives were finally assembled. Raytheon shares also fell sharply following the news.
Deutsche Bahn has ordered XXL S-Bahn trains to Munich from Siemens Mobility. A Deutsche Bahn spokesman in Munich said the order included 90 new cars with a length of 200 meters. He initially did not disclose information on the investment amount. Details of the order will be announced in early August.
Shares in the pharmaceutical and chemicals group Bayer initially posted losses but ended up posting modest gains. Bayer slashed its annual target overnight due to weakness in crop protection products such as the herbicide glyphosate. Accordingly, the group is taking a €2.5 billion write-down on its glyphosate business, which will lead to a loss of €2 billion in the second quarter.
The legal dispute over Lufthansa’s billions in coronavirus state aid continues. The company has appealed a ruling by the European Court of Justice that the European Commission should not approve German state aid. A company spokesman in Frankfurt confirmed this on Tuesday. In its judgment in May, the court accused the European Commission of a “clear assessment error” and declared the approval invalid. LH paper bucks the trend in MDAX.
Construction group Hochtief reported higher revenues in the first half of the year. On top of that, businesses in North America and Asia Pacific, as well as Spanish motorway operator Abertis (Hochtief owns about 20%) fared much better. Consolidated profit adjusted for special effects rose 8.3 percent year-on-year to 270 million euros in the first half, the company announced today in Essen.
With a healthy order backlog, Hochtief expects a effects-adjusted net profit of between 510 million euros and 550 million euros for the year. In 2022, adjusted profit rises sharply to nearly $522 million. Including special effects, Hochtief reported a profit of 261.9 million euros for the first six months of 2023. This is an 8.9% increase over the previous year. Sales rose 9 percent to 13 billion euros.
The Darmstadt-based company was included in the index after investor Silver Lake acquired Software AG. These papers drop today from MDAX and TecDAX. Auto supplier Vitesco is a newcomer to the SDAX launch, a new addition to the mid-cap index. Borussia Dortmund will return to SDAX with Vitesco. Following the acquisition, Software AG’s free float has fallen below the 10% threshold required for inclusion in the index.
The reluctance of customers, especially in Europe, weighed on the balance sheet of US chemical group Dow Chemical in the second quarter. Dow Jones said today in Midland, Mich., that its revenue for the three months ended June fell 27% from a year earlier to $11.4 billion. Analysts had expected lower earnings. In addition to sharp declines in sales in Europe, the Middle East, Africa and India, the company was also affected by lower prices.