Handelsblatt: Difficult times in the markets – ‘The stock market swings continue’

Leading German index Dax faces another week amid financial worries and hopes for a positive reporting period, according to Handelsblatt.

It is true that the business size of Dax companies is quite good so far, despite the Russian attack on Ukraine and its economic consequences. However, supply chain problems and the uncertain outcome of the war and its consequences are of concern to stock market players.

In addition, fears of an economy groaning below the sharp rise in interest rates will be present again in the new week. On Wednesday, the US Federal Reserve is expected to raise the key interest rate for the second consecutive month.

On Friday, the German benchmark closed the week up 0.8% at 14,098 points. For the month, however, the Dax fell 2.2%. The US tech stock Nasdaq slipped more than 13% over the same period. This is the biggest loss since October 2008, at the height of the financial crisis.

On both sides of the Atlantic, bond yields are already rising sharply as central banks are expected to take decisive action to combat high price increases. In the euro area, energy costs pushed inflation to a record high of 7.5% in April.

Thus, the European Central Bank (ECB) medium-term inflation target of 2.0% is even higher than in the past. This forces the ECB to act. As a result, markets expect the central bank to raise key interest rates for the first time this summer.

Interest rate increase by 0.5%

On the other hand, the US Federal Reserve is expected to significantly increase its key interest rate as early as Wednesday. Following the reversal of the key interest rate in March by an increase of 25 basis points, stock market experts expect that the Fed will now decide to increase by 50 basis points. The period of the basic interest rate will then be 0.75 to 1.00%. During the tightening of monetary policy, the Fed will also present plans on how to shrink its balance sheet.

Commerzbank experts wrote that “due to high inflationary pressures, monetary guardians obviously want to quickly reach a key interest rate level that will no longer stimulate the economy.” Because raising interest rates makes loans more expensive for businesses, which slows down their investment activity.

“Price swaps continue,” said Landesbank Hessen-Thüringen (Helaba) experts. “An unfavorable mix of growth worries and fears of rising interest rates continues to plague equities.” However, much of the negativity is likely to have already been valued in stock prices.

The war in Ukraine is also still a concern. Following the recent cessation of Russian gas supplies to Poland and Bulgaria, the closure of the tap is becoming more and more likely for other consumer countries, according to Landesbank Baden-Württemberg (LBBW) market observers. The weaker Russia’s position in Ukraine, the greater the risk of escalation.

“However, the favorable valuation of European stocks in particular shows that many of them have already been taken into account in the reduced price levels,” the LBBW reports. Nevertheless, in this mixed situation, it may be advisable for investors to follow the old stock market rule “Sell in May”.

In anticipation of the upcoming financial data of the new week, according to the analysts of Helaba, the surveys of market managers from the USA, the Eurozone and China for April will be the first economic climate test for how the first increase of its interest rates was accepted. Fed.

In addition, an ongoing strong monthly report on the US labor market is expected on Friday. Also on Friday, production figures for manufacturing in Germany are expected to be rather weak, Dekabank predicts.

The reporting period continues

In Germany, the reporting period is not yet as advanced as in the US. To date, approximately 60% of Dax companies have exceeded expectations. In terms of profit evolution, it is crucial whether companies are able to pass on the increased cost of energy and raw materials to final consumers.

Among others, BNP Paribas, Covestro and Deutsche Post (all Tuesday), Airbus, Enel, FMC, Fresenius, Hannover Re, Siemens Healthineers and Volkswagen (all Wednesday), AB Inbev , BMW, Henkel, Vonovia and Zalando (all on Thursday), as well as Adidas, ING and Intesa Sanpaolo (all on Friday) will report next week.