Sunday October 24th 2021
Shares as a safe haven
Stock exchanges overcome fear of stagflation
Both economic data and company data have recently been better than expected. If this continues in the coming week, investors need not fear rising inflation – on the contrary.
A full week lies ahead of Dax & Co and with it the chance of a price swing at any time – in one direction or the other. Because everything is included, from the picking reporting season to economic data and central bank meetings. For professional investors, the often ungrateful situation arises of having to price new information at the macro level with that at the micro level from the company side at the same time in a share price.
On Friday, the Dax closed 0.46 percent up at 15,542.98 points. On a weekly basis, the stock market barometer shows a minus of 0.28 percent. The MDax of the medium-sized values advanced on Friday by 0.31 percent to 34,824.99 points. The Dax has recently lost momentum, but this is happening at such a high level that investors cannot complain, wrote the stock exchange statistician Andreas Büchler from Index Radar.
The current data allows the fear of “stagflation” to recede somewhat into the background. The new purchasing manager indices show in Europe that the economy is still a tad stronger than expected, even with the known problems of the supply chain. At 58.5 points, the Eurozone PMI for industry was almost at the previous month’s level and did not show the expected dent. The German industrial PMI jumped almost two full points above expectations at 58.2.
For fans of easy money printing, this is of course bad news: The ECB has fewer and fewer excuses to dodge reality and at least discontinue the multi-billion dollar bond purchase program. The market is already preparing for this and is gradually driving yields upwards. Whether this is enough to curb inflation is questionable: In Germany, for example, producer prices exploded by 14.2 percent compared to the previous year – that was the highest increase since 1974.
Falcons mourn for Weidmann
The fact that still-Bundesbank boss Jens Weidmann has now thrown in the towel is seen by some market participants as a warning sign. They fear that without the German “falcon” the ECB leadership would be indifferent to the problems of ordinary people with skyrocketing prices. The market is therefore looking forward to next week’s ECB meeting with excitement.
A lot still depends on who will fill Jens Weidmann’s post. However, warning voices such as those from ZEW economist Friedrich Heinemann are unlikely to be heard in politics: “If Germany were to send a monetary dove to the ECB Council, it would be fatal,” he warned. And market strategist Tomasz Wieladek from T. Rowe Price expects nothing else from the candidates of the new federal government: “Each of these appointments would, however, represent a more relaxed monetary policy stance than President Weidmann and be more in line with ECB policy.”
Hope for a positive surprise from the tech giants
This is again good news for the stock markets. Because if things are more rounded than expected on the economic side and at the same time a completely unnecessarily loose monetary policy is running, there is enough fuel for rising exchange rates. In some cases, shares are also a safe haven currency to save money from devaluation.
The reporting season should boost confidence in public companies next week. Because the third quarter is going well. In the US, for example, the profits actually made by the S&P 500 companies exceeded expectations by around 12 percent. So the chances are good that technology giants such as Apple, Amazon, Google, Microsoft and others will do better than hoped for in the coming week.
And in Europe, too, the first heavyweights are presenting business figures, such as the Stellantis auto company. In the Dax comes data from VW and Daimler as well as BASF, Deutsche Bank, Linde and Airbus. And when it comes to economic data, the most important data are due: For example, the first GDP data from the USA and the countries of the euro zone for the third quarter. And consumer prices (CPI) are reported from Germany, the EU and other countries.