After last week's interest rate hikes, which were in line with expectations, the focus is now back on corporate figures and economic data. So far, the reporting season is going quite well, only in the medium term it could be more difficult, they say.
July 31, 2023 FRANKFURT (Frankfurt Stock Exchange). The mood on the trading floor could hardly be better. "After the interest rate hikes in the U.S. and Europe, market participants expect an end to the rate hike cycle soon," notes Christian Henke of IG. Fear and volatility have eased significantly again, he adds. "Falling volatility is known to drive the stock markets."
The DAX stands at x points on Monday morning. On Friday, the index had climbed to a new all-time high of 16,493.91 points, at the close of trading it was slightly lower at just under 16,470 points. The U.S. markets have also gone out of trading with gains, but the all-time highs have not yet been reached again there. "Whether it goes further north in the coming weeks depends on the upcoming economic data and quarterly figures," notes Henke. In seasonal terms, the DAX and S&P have now entered a very weak market phase. "It could go until early and mid-October, respectively."
"Companies are in a very solid position"
The reporting season continues this week, with Adidas, BMW, Deutsche Post, Infineon and Lufthansa, among others, and in the U.S. Amazon, AMD and Apple opening their books. Much therefore revolves around the question: Are the figures good? And will they remain so? According to Hannah Thielcke of Weber Bank, the quarterly figures published so far have been better than expected on average. Although sales are down slightly after the record quarter at the end of 2022, cost pressure is easing noticeably. In total, this leads to slightly declining profits, but profits remain at a high level. "In this respect, the party on the stock market continues for the time being, and speculation about an end to the interest rate hike cycle in the U.S. is additionally fueling sentiment." With the new highs in the stock market, however, the air is getting thinner, he said. Negative economic or political surprises could quickly tip the mood. "Overly risky positioning is therefore not the way to go. However, neither is a significant reduction in equity allocation, as companies continue to look very solid."
Dampened earnings prospects in the medium term?
"The stock markets have so far been robustly absorbing the interest rate hikes to date," notes Andreas Hürkamp of Commerzbank. This has been helped by the very solid development of earnings expectations until recently. For example, DAX and Euro Stoxx earnings growth expected for fiscal 2023 has been stable at around 2 percent since the beginning of the year. This trend is also unlikely to change for the time being. "After all, in the earnings season currently underway, a surprising number of companies have raised their full-year targets for the second quarter." In the medium term, however, the bank continues to expect the more restrictive monetary environment to dampen companies' earnings prospects.
Low turnover "no material for bull market".
According to Ralf Umlauf of Helaba, the technical picture is constructive, with the new high confirming the upward momentum. "The technical environment does not speak against a further increase. Only the still very low level of the ADX gives rise to some skepticism." According to independent chart technician Christoph Geyer, turnover only picked up dynamically on Thursday, while it slumped again significantly on Friday. "Such behavior is not necessarily the stuff of which a bull market is made." Regardless, however, the situation clearly improved once again with the breakout. The period ahead through the end of September was more balanced in terms of seasonality, he said. "However, the swings in the negative years were much stronger than in the positive ones." Overall, therefore, an excessive increase should not be expected in the short term, even if the overall situation looks quite pleasing.
Geyer
Important economic and business dates of the week
Monday, July 31
11:00. Eurozone: GDP second quarter. Expected to be up 0.2 percent on the previous quarter after the economy stagnated in the first quarter.
11.00 a.m. Eurozone: Consumer prices July. Inflation in the euro zone is likely to have fallen to 5.3 percent in July, according to DekaBank. This was due to a decline in inflation for both energy goods and food. However, the bank expects the core inflation rate to remain high at 5.5 percent.
Thursday, August 3
1:00 p.m. United Kingdom: Bank of England interest rate decision. According to DekaBank, the Bank of England will raise its key interest rate by 25 basis points to 5.25 percent. This would probably mean that the key interest rate has reached its high point.
Friday, August 4
2:30 p.m. U.S.: July unemployment data. The unemployment rate is expected unchanged at 3.6 percent, as reported by Deutsche Bank. In addition, 190,000 new nonfarm jobs are forecast, down from 209,000 in June. This would be the lowest monthly job creation since December 2020.
By: Anna-Maria Borse, July 31, 2023, © Deutsche Börse AG.
Anna-Maria Borse is a finance and economics editor specializing in financial markets/stock markets and economic topics.
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