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Recession concerns: Fed decision burdens the DAX & More Breaking News



market report

Status: 09/22/2022 09:38 a.m

The persistently high pace of interest rate hikes by the central banks is spoiling investors’ mood. After another jumbo rate hike by the Federal Reserve in the USA, they are now looking forward to England and Switzerland.

The third major interest rate hike in a row, gloomy statements from the US Federal Reserve (Fed) and expectations of the interest rate decision by the British Bank of England (BoE) are causing the DAX to drop today. The leading German index started trading down around 1.8 percent. In the first half hour, however, he was able to recover and quickly approached 15,600 points again.

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In the evening, the Fed continued its series of large interest rate hikes and raised the key interest rate again by 0.75 percentage points – to the new range of 3.00 to 3.25 percent. He reached the highest level in 14 years.

The 12,500 point mark is getting closer

The move is intended to counter rampant inflation, which is historically high in the US. With the strict monetary policy, however, there is a growing risk that the central bank will soon slow down the economy so much that the job market and the economy are stalled. This can also be felt on the stock market.

With the new losses, the DAX is threatened with another test of the round mark of 12,500 points, which already served as support in July and March. For a short time, it fell below an annual low of 12,390 points, which is now coming to the fore again. Because of the war in Ukraine, the high inflation, the key interest rates that are rising sharply as a result, and fears of a recession, the DAX has lost around a fifth in the year to date. Before the Fed meeting yesterday, the leading index ended trading with a plus of around 0.8 percent, despite the partial mobilization of Russia.

Wall Street falls

On Wall Street, the most important indices had fallen to new lows since July due to the next sharp increase in interest rates. After ups and downs in prices, the Dow Jones lost 1.70 percent to 30,183 points. In late trading, the pressure to sell increased, and the leading index fell to its lowest level in more than two months. The market-wide S&P 500 fell 1.71 percent, the technology index Nasdaq 100 lost 1.8 percent.

The problem was not the specific increase, said analyst Jochen Stanzl from the online broker CMC Markets. “Instead, it was the fact that the Fed will stubbornly continue its program, daunting hopes of monetary accommodation.” Many would have hoped for a more cautious approach because of the slowdown in the US economy. Instead, Fed Chair Jerome Powell made it clear yesterday that the big rate hikes are far from over. “I wish there was a painless way,” Powell said. “There isn’t one.”

Investors were therefore more and more worried about a “hard landing,” according to Credit Suisse. Current data on the forecast future interest rates (“Fed dot plots”) in particular attracted attention, which, with an interest rate high of 4.6 percent in 2023, was above market expectations.

BoE and SNB in ​​sight – technology papers under pressure

Against this background, technology companies in particular got under the wheels. According to experts, higher interest rates will devalue the future profits of these high-growth companies. This caused the online fashion retailer Zalando, the recipe box sender HelloFresh and the food delivery service Delivery Hero to lose up to 3.5 percent.

Today, further interest rate decisions are in the focus of investors. The British central bank (BoE) is likely to raise the key interest rate unusually sharply. Stockbrokers expect an increase in the key monetary policy rate by 0.75 percentage points to 2.5 percent. The Swiss National Bank (SNB) ended the era of negative interest rates this morning after eight years. The monetary authorities raised the key interest rate by 0.75 percentage points to 0.50 percent.

Bucking the global trend, Japan’s central bank is sticking to its low interest rate policy. After a two-day meeting, the monetary authorities decided to leave their most important monetary policy levers unchanged. Short-term interest rates are to remain at minus 0.1 percent and long-term rates at around zero. In response to the decisions, the yen continued to depreciate against the dollar to a 24-year low. The three central bank meetings are pushing the upcoming economic data into the background today. This is how the barometer for consumer confidence in the euro zone is published.

Asia’s stock exchanges are also in the red

There is also no tailwind for the stock exchanges from Asia today. The stock markets also lost ground after the US Federal Reserve’s decision the previous evening. In Tokyo, the leading Japanese index Nikkei 225 fell almost 0.6 percent. In Shanghai, the CSI 300 index, which lists the top 300 companies on China’s mainland stock exchanges, fell 0.89 percent.

The stock market in the Chinese special administrative region of Hong Kong went down even more. There, the leading index Hang Seng lost up to 2.6 percent at times and fell to an eleven-year low. As long as the increased recession risks are not fully reflected in the prices, a sustained below-average development of risky investments must be expected, said investment strategist David Chao from the asset manager Invesco.

Dollar rises to 20-year high

The soaring of the world reserve currency continues. The dollar index, which reflects the exchange rate against major currencies, is up 0.3 percent today and is trading at 111.79 points, the highest it was a little over 20 years ago. “What else can you buy right now but the dollar,” asks Sally Auld, chief investor at wealth manager JB Were. “The Fed will not stop raising interest rates anytime soon.” Other stockbrokers also point to the attractiveness of the dollar as a “safe investment haven” against the background of the looming recession in Europe, the weakening Chinese economy and the ongoing war in Ukraine.

On the other hand, the euro remains under pressure. Overnight, the common currency fell as low as $0.9809, its lowest level in about 20 years. The European Central Bank (ECB) set the reference rate a little higher yesterday at $0.9906.

Oil prices rise slightly

After rising yesterday, oil prices rose again slightly in early trading. In the morning, a barrel (159 liters) of North Sea Brent cost $90.19. That was 36 cents more than the day before. The price of a barrel of US West Texas Intermediate (WTI) grade rose 32 cents to $83.26.

The price development on the oil market is still subject to fluctuations. The increasing tensions between the West and Russia as a result of the Ukraine war are leading to a trend towards rising prices. Since Russia is one of the largest oil producers in the world, the tensions are causing risk premiums in the oil market. On the other hand, crude oil prices are being weighed down by concerns about the economy and the tight monetary policy of many central banks.

Uniper papers under pressure again

The day after the official announcement of the nationalization, Uniper’s slide continues. The gas supplier’s shares fell by more than six percent. “For the private investors who fortunately only hold a little more than six percent, there are now only the alternatives of fleeing or standing firm,” says stock expert Thomas Hechtfischer from the German Protection Association for Securities Ownership (DSW) of the “Rheinische Post” according to the preliminary report. Shares in the company, which was spun off from Eon in 2016, fell by almost 40 percent yesterday and had lost a quarter of their value.

O2 opens antenna locations for competitors Munich

In the fight against dead spots, a cooperation between the three major German mobile phone providers is making progress. The network operator Telefónica (O2) announced today that 200 of Deutsche Telekom’s own locations had been activated and in return had access to the same number of locations of the Bonn group. By the end of the year, the two network operators want to let each other on the network at up to 700 locations. These are so-called gray spots, where only one or two networks are available and not all three. Anyone who has a contract with the provider who is not present there is in a dead zone.

About You under pressure after graduation

Shares in online clothing retailer About You continue their recent slide following a downgrade by Deutsche Bank. With a minus of 2.8 percent, the paper slipped below the record low of 5.21 euros reached just last week. The share, which has been listed on the stock exchange since summer 2021, has had to take a beating over the past few weeks and months. Since the end of 2021, the price has fallen by almost 75 percent. Nizla Naizer, analyst at Deutsche Bank Research, downgraded the stock from “buy” to “hold” today and lowered the price target from 19 to nine euros. She justified the step with a difficult environment. The ever-worsening consumer sentiment is particularly noticeable in the fashion sector.

Suse threatens record low after lowered order forecast

The shares of the Linux specialist Suse fell by almost 24 percent to a record low of 13.93 euros despite an increase in profits. This is the biggest price drop since the IPO around a year and a half ago. The operating profit exceeded expectations, commented analyst Charles Brennan from the investment bank Jefferies. However, bookings have declined. In addition, the company has lowered forecasts for bookings in its core business.

Softbank is reviewing its subsidiary Arm’s alliance with Samsung

The Japanese technology investor Softbank wants to talk to the South Korean Samsung about a partnership with its chip designer subsidiary Arm. Softbank CEO and founder Masayoshi Son said today he plans to meet with Samsung to explore a strategic alliance between the South Koreans and Arm. Samsung Vice Jay Y. Lee announced yesterday that Masayoshi Son is expected to come to Seoul in the coming month. Softbank bought Arm, whose technology powers Apple’s iPhone and almost every other smartphone, in 2016 for $32 billion.

Novartis confirms medium-term goals

The Swiss pharmaceutical company Novartis has confirmed its medium-term goals. “We will continue to improve our financial results and achieve revenue growth of over 4 percent by 2027 and an adjusted operating profit margin of more than 40 percent in the medium to long term,” said the drugmaker’s CEO Vasant Narasimhanam today. The group aims to strike a balance between continuing to invest in the business and returning capital to shareholders. Novartis is on track to achieve savings of around $1.5 billion by 2024.

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