Market report: Interest rate fears weigh on Wall Street


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market report

Status: 07/06/2023 10:26 p.m

Investors must continue to adjust to a tough stance from the US Federal Reserve. Robust new economic data fueled interest rate fears on Wall Street. The DAX also came under massive pressure.

New concerns about interest rates caused losses on the New York Stock Exchange during the course of the day. Similar to what happened before on the European markets, investors withdrew after surprisingly robust new US economic data and pushed the major Wall Street indices into the red. However, these stabilized in the course of trading and were able to make up some of the initial losses by the closing bell.

The leading index Dow Jones ended trading at 33,922 points, a minus of 1.07 percent. The market-wide S&P 500 index fell 0.79 percent to 4411 points. The technology-heavy Nasdaq indices fared somewhat better, benefiting, as on the previous day, from positive news about selected individual stocks.

Chip stocks increasingly trimmed their losses as the period progressed. In addition, Microsoft, also a heavyweight, increased by almost one percent after a positive analyst comment from Morgan Stanley on the AI ​​market position of the software giant. The experts increased their target price from $335 to $415. The Nasdaq 100 selection index fell 0.75 percent at the end.

According to expert Pierre Veyret from broker ActivTrades, it is becoming increasingly difficult for investors to find reasons to buy shares. He expects the downward pressure on risky assets such as equities to continue until improvements in the economy or monetary policy become clear. In particular, the current US labor market figures on Friday are therefore eagerly awaited.

The reasons for the losses, not only in New York, were the surprisingly robust data from the private US employment agency ADP and a solid mood indicator for US service providers. Both indicators exceeded the experts’ expectations and fueled new interest rate fears.

Specifically, employment rose by 497,000 in June compared to the previous month, as the employment service provider ADP announced in Washington in the afternoon. This is the strongest increase since February 2022. On average, analysts had only expected 225,000 new jobs. The ADP data is seen as a precursor to the government’s official jobs statistics, which are expected on Friday.

In the eyes of the Federal Reserve (Fed), a strong labor market favors the development of inflation, which is currently the bank’s top priority to combat. The robust condition of US service providers, the most important source of economic value creation, also allows the same conclusion.

As can be seen from the most recent minutes from the US Federal Reserve, which became known the evening before, the monetary watchdogs see room for improvement in interest rates, although they took a break in June and maintained the key interest rate range of 5.0 to 5.25 percent.

Fed Chairman Jerome Powell declared at the end of June that most central bank decision-makers expected at least two further rate hikes by the end of the year. “The question is no longer whether the Fed will hike this month, but how many more hikes will follow,” said Craig Erlam, an analyst at trading house Oanda.

The Landesbank Helaba said that the two economic data from the USA should “almost cement the interest rate move by the Fed in July. The interest rate expectations of market participants will probably be pushed beyond July.”

Amid the general dreariness, meta-stocks have long held up better against the trend and are the biggest talking point among individual stocks on Wall Street right now. In the end, however, the meta papers also gave way and closed 0.8 percent lighter.

According to a media report, Twitter is threatening the Facebook parent company with a lawsuit because of the rival app Threads that has just been launched. A Twitter lawyer accused Meta in a letter of using confidential information and internal knowledge of the short message service for threads, the website Semafor wrote on Thursday and published a copy of the letter.

Meta today launched its Twitter-competing app called Threads. The application was released in the United States and dozens of other countries on Thursday night. Threads will initially not be available in Germany and the other EU countries – the group refers to regulatory issues that are still open.

Expectations of the reporting season at US banks meanwhile sent their shares plummeting. The financial institutions will open their reporting season for the second quarter at the end of next week.

Despite the positive results of the annual stress test for major US banks, investors are eagerly awaiting comments from managers on the stability of deposits and the looming recession. In the spring, the Silicon Valley Bank (SVB) and other regional financial institutions collapsed as a result of the interest rate hikes by the US Federal Reserve.

The prospect of further interest rate hikes in the United States hit the DAX hard. After the publication of surprisingly robust US economic data, the leading German index came under massive selling pressure, especially in the afternoon. At the end of XETRA trading there was a strong daily loss of 2.57 percent to 15,528 points on the display board.

The index thus closed close to its daily low and has finally given up the long-fought mark of 16,000 points. At the daily low, the DAX even fell just below the 15,500 point mark at 15,495 points in late business. The daily high was still 15,846 points in the morning. The MDAX, the index of medium-sized stocks, also fell significantly by 2.64 percent to 26,708 points.

The losses went across all sectors, with all 40 DAX stocks closing in the red. Qiagen and Merck were the “best” and were the only ones in the leading index to lose less than one percent. The loser of the day was the real estate group Vonovia with a minus of more than seven percent, and Adidas also lost significantly.

There were also significant discounts on the bond markets, where prices fell and, in return, the yield on ten-year federal bonds climbed to over 2.6 percent. In the USA, securities with the same term are currently yielding significantly higher at 4.03 percent.

The smoldering trade conflict is also becoming more important again for investors: “For a long time, the trade dispute between the USA and China was quiet. But now the next level of escalation is imminent,” says Christian Henke, market expert at financial service provider IG. China wants to make it more difficult to export certain raw materials that are important for chip productionafter the USA restricted the export of high-performance chips to the People’s Republic.

From the beginning of August, companies must apply for a license to export gallium and germanium products. This should protect the strategic interests and security of the People’s Republic. US Treasury Secretary Janet Yellen is currently traveling to the People’s Republic amid the conflict.

On the other hand, German economic data provided good news in the morning: In May, German industry had the largest increase in orders for almost three years. According to the Federal Statistical Office, orders rose by 6.4 percent compared to the previous month. Economists surveyed by the Reuters news agency, on the other hand, had only expected an increase of 1.2 percent. In April, revised new business rose by 0.2 percent, and in March it shrank by 10.9 percent, the most since the corona pandemic in April 2020.

The good data bolstered the euro, which was last traded slightly higher in US trading at $1.0889. The European Central Bank had set the reference rate at 1.0899 (Wednesday: 1.0879) dollars. Higher rate hike expectations in the US after yesterday’s Fed minutes and today’s data had given the greenback a boost. However, the euro recovered somewhat over the course of the year.

The cryptocurrency Bitcoin rose over the course of new high for the year at $31,500. “The dominant topic for crypto investors at the beginning of the new month remains the ongoing speculation about the release of a Bitcoin spot ETF in the USA,” comments Timo Emden from Emden Research.The asset manager Blackrock had submitted a corresponding application in the middle of last month. A final approval would be an accolade for Bitcoin and Co.”

However, the cryptocurrency fell back after the US economic data and the improved interest rate outlook for the dollar and closed in the red.

Oil prices eased on Thursday. Most recently, a barrel (159 liters) of the North Sea Brent for delivery in September cost 76.46. That was 0.55 percent less than the day before. The price of a barrel of American grade West Texas Intermediate for August delivery (WTI) fell by 0.39 percent.

The very gloomy mood on the stock markets also weighed on oil prices. After robust economic data from the USA, the probability of further interest rate hikes has increased. Rising interest rates can adversely affect the economy and thus the demand for crude oil.

The data on crude oil inventories released in the afternoon hardly moved investors. Crude oil inventories have fallen over the past week, according to the Department of Energy. However, the decline was less severe than expected. In addition, stocks of gasoline and distillates have also fallen.

According to information from industry circles, the European aircraft manufacturer Airbus delivered 316 aircraft in the first half of the year, six percent more than in the same period last year. The company did not want to comment on the figures, which are to be officially published on Friday. The world market leader is aiming for 720 deliveries for the year as a whole. Aircraft construction has been suffering severely from supply chain problems since the corona pandemic. The situation is improving, however, as sales manager Christian Scherer recently told the Reuters news agency.

Meanwhile, Volkswagen is preparing for the commodity controls announced by China. When asked by Reuters, the group said it was assessing and monitoring the situation on the commodity markets comprehensively in order to take action together with its partners if necessary. “The goal is always to keep the impact on the production network as low as possible.” Gallium and germanium are important resources for automotive products such as LEDs, high-frequency applications and play a role in future autonomous driving functions.

There is a change in the board of directors at Kion. CFO Marcus Wassenberg is leaving the MDAX company with immediate effect, Kion announced in the evening in Frankfurt. It was said that he was leaving the house on the best of terms and at his own request.

Successor will be Christian Harm, who will receive a three-year contract. The manager has been with the company or its predecessor for more than 20 years. The news initially had no effect on the share price.

The new management of the software company Suse has to cope with a slump in profits due to the reluctance of customers and negative exchange rate effects. The operating result collapsed in the second quarter by 63 percent to twelve million dollars, said the Nuremberg company. The inflow of funds even shrank by 83 percent to four million dollars. Sales increased slightly by one percent to $162 million.

The special packaging manufacturer Gerresheimer, which produces for the pharmaceutical and cosmetics industry, expects further positive business development in 2023 after an increase in sales and profits in the second quarter. The group confirmed its forecasts. From April to June, Gerresheimer increased sales to around 500 (previous year: 445) million euros, adjusted operating income (Ebitda) increased to 107 (previously 90) million euros.

The first IPO in Germany for five months is a done deal. The shares of the Thyssenkrupp hydrogen subsidiary Nucera will be issued at 20 euros each, the company said. It is valued at 2.53 billion euros. The issue volume is 605 million euros, of which 526 million euros will go to Thyssenkrupp Nucera. The company wants to invest the money primarily in the expansion of the electrolysis business. The initial listing on the Frankfurt Stock Exchange is planned for tomorrow, Friday (July 7).

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