Stock markets on the decline
Looming recession scares European investors
09/29/2022, 7:49 p.m
The list of worries is long: Inflation is rising, interest rates too, gas pipelines are being sabotaged and a hurricane is wreaking havoc. “Bad mood” prevails on Europe’s stock exchanges. The courses fall. Only debutant Porsche can hold its own to some extent.
Fear of the economic consequences of further drastic interest rate hikes and disappointing company balance sheets are sending Europe’s stock markets into a tailspin. Neither the debut of the sports car manufacturer Porsche nor the 200 billion euro federal protective shield to cushion rising energy costs brightened the mood. The DAX and EuroStoxx50 each fell by 1.7 percent to 11,975 and 3279 points, respectively. The US standard value index Dow Jones lost 1.24 percent.
“Rarely have I seen sentiment this bad,” said Neil Wilson, chief analyst at online brokerage Markets.com. The good news is that this signals that the sell-off is nearing an end. The bad news, on the other hand, is that the timing of the trend reversal remains unclear, as does the extent of the damage to investors’ portfolios.
The growing price pressure made us nervous. Inflation in Germany rose to ten percent in September compared to the same month last year. Analysts had expected a value of 9.4 percent. “The high inflation acts like an emergency brake for the economy,” explained economist Michael Heise from the asset manager HQ Trust. “Lower purchasing power and less consumption by private households, rising production costs for companies and anti-inflationary measures by the European Central Bank (ECB) to dampen the economy are all coming together.”
Recession in Germany inevitable
Against this background, the leading research institutes are forecasting that the ECB will raise interest rates at a much higher rate than previously thought. In addition, a recession in Germany is inevitable. Investors are mostly expecting an increase of 0.75 percentage points for the ECB meeting at the end of October. They estimate the probability of a step by a full percentage point at around 40 percent. As a result, already traded, low-interest government bonds flew out of the depots. This drove the yield on 10-year Bunds back toward their most recent 11-year high of 2.352 percent.
The euro failed to benefit from rate hike speculation and fell further to $0.9794. He is suffering from the energy crisis and the uncertainty in connection with the alleged sabotage of natural gas pipelines in the Baltic Sea, said Commerzbank analyst Esther Reichelt. In addition, stockbrokers doubted that the ECB would tighten its monetary policy as significantly as the US Federal Reserve in view of the impending recession.
Meanwhile, thanks to continuous deliveries of liquefied natural gas (LNG), the situation on the energy market eased. In addition, the mild weather is dampening demand, wrote the experts from EnergyScan, the data provider of the utility Engie. The European natural gas future fell 7.73 percent to 185 euros per megawatt hour.
Shifts from VW to Porsche?
In the meantime, everything on the stock market revolved around the Porsche: In the evening, the shares of the stock market debutant were exactly at their issue price of 82.50 euros at 82.50 euros. The papers of the major shareholder Volkswagen, on the other hand, slipped by 6.85 percent. “There seems to be a shift from Volkswagen to Porsche,” said Jochen Stanzl, chief market analyst at online broker CMC Markets. The sports car manufacturer is seen by some investors as a manufacturer of luxury goods and is therefore rated higher than an industrial group. “Against the background of the market environment, this is a successful IPO.”
Storm “Ian” hit numerous companies on Wall Street because flights and cruises in the affected US states were canceled or branches were closed. The shares of the airlines American Airlines, Delta and United as well as the shipping companies Carnival Cruise, Royal Caribbean and Norwegian fell. The stocks of retailers such as Walmart, Target or Home Depot also fell.