Brse Frankfurt-News: Recession keeps US stock markets in decline (foreign equities) | News

FRANKFURT (DEUTSCHE-BOERSE AG) – A possible recession in the US and a possible epidemic in Europe are the greatest risk for capital markets. Concerns about this still weigh on the stock exchanges. Even lower German inflation will not change that. In turn, prices in Asia are rising dynamically.

June 30, 2022 Frankfurt (Frankfurt Stock Exchange). Concerns about a recession plunged the US stock market into a bearish market in June. While the S&P 500 is only in this range, it is also approaching its weakest half-year since 1970. In June alone, the index fell by a good 8 percent. The NASDAQ tech exchange remains deep in a market that accounts for more than 20 percent of losses from the maximum, one of the definitions of a bear market. NASDAQ Composite had its weakest quarter since 2008. He also lost 8 percent. on a monthly basis and a good 22 percent. on a quarterly basis.

Despite slightly lower inflation in Germany: record expected values ​​in Europe

Prices are also falling in Europe: EURO STOXX 50 lost 10 percent in the month and 12.8 percent in the quarter. Lower than feared inflation in Germany in June was not able to counteract this. Although the price increase by 7.2 percent. was lower than forecast, economists see no relief.

According to Ulrich Wortberg of Helaba, the European Central Bank remains under pressure to raise key interest rates significantly as inflation remains very high and energy prices are yet to be clear. “It is also important to consider that the price pressure at EMU level is likely to have increased even further.” For example, Spain saw an increase of 10%. in line with EU harmonization. “Therefore, there is a concern that EMU inflation will rise to a new high.”

Historical date in the bond market

Market participants recently focused on the monetary policy symposium in Sintra, Portugal. There, the ECB president Christine Lagarde signaled that the ECB may accelerate rate hikes. In addition, from 1 July, it will start to handle reinvestments from the PEPP program very flexibly to limit excessive movements in government bonds.

“With the end of the years of ECB bond purchases, June 30, 2022 is now a historic date,” comments Marc Richter of Baader Bank. Bond purchases also had, and above all, lowered long-term interest rates.

Fed chairman Powell warned in Sintra that lowering the inflation rate would be painful, but the Fed believes it could prevent a US recession. After the largest 75 basis point hike in US base interest rates in nearly 30 decades, the Fed will now raise interest rates more moderately: economists expect another 50 basis point hike. “The market is increasingly pricing-in this more moderate rate hike after the recent hike of 75 basis points,” says Walter Vorhauser of Oddo BHF Corporates & Markets. “Investors’ fears of inflation have turned to fears of recession, and now the recession is the biggest risk,” adds the stock trader.

Possible rescue rallies

“While market participants’ investment decisions were previously shaped by concerns about inflation, we are now focusing on concerns about growth,” summarizes the situation of Commerzbank’s Andreas Wex. Commerzbank expects a US recession in the first half of the year. “The fundamental environment continues to deteriorate accordingly and we can also expect prices to fall in the coming weeks or months,” explains Wex. However, the extremely depressed mood in the markets should allow for a “classic” rebound from time to time.

Meanwhile, Richter warns of the second-round effects: “We don’t think real estate prices will grow as fast as before, because interest rates are working like a changer.” In addition, the debt of Italy and other peripheral countries is becoming an increasingly important issue. “Depending on the development, the debt will affect the already weakened euro.” Negative events will accompany the markets in the second half of the year. “It also means that the bear market may persist and volatility may remain high.”

Exchanges: Sales are falling – but there is hope

The difficulties are still reflected in the volume of trading on the stock exchange: “The volume of trading has continued to decline over the past few weeks,” explains Vorhauser. But there have been a few glimpses of hope since then. Over the past few trading days, US ten-year yields have dropped from a high of 3.5 percent to 3 percent. “That gives hope, and that’s what the bond and equity markets are all about,” explains Vorhauser. Despite seasonal weakness, the second half of the year may start better than the first.

Oil prices remain high

“There is hope that the stock markets will stabilize somewhat in the coming weeks.” For example, falling oil prices could contribute to this. Brent is almost unchanged for the month, but has still remained at 78 percent from the start of the year.

However, according to Vorhauser, the trend is not reversing towards much lower oil prices. “That’s why we assume that oil stocks will remain attractive,” he says, referring to Warren Buffett, who has recently been buying in the sector.

Meanwhile, Richter turns his attention to producer prices: “Producer prices are tomorrow’s inflation.” They will only come into effect in the coming months, such as persistently high oil prices. OPEC + is likely to decide to take advantage of high prices and pump more to increase supply. “That would cause prices to drop – depending on how much the taps are turned on.” The end of the blockade in Shanghai and further easing in China may also increase demand. The geopolitical situation in Asia is also less tense than in Europe today.

Rising prices in China

Above all, Vorhauser views the signs of China’s economic recovery as positive: Following the closure of the Shanghai lockdown, China’s purchasing managers’ indices rose in both services and industry. “The positive trend from May continues,” explains Vorhauser. “Both are above 50, representing an economic expansion.”

Investors would be favorable to this development. There are positive signals on the Chinese stock exchanges. The CSI 300 grew by a good 11 percent over the month. In particular, the technology sector is recovering. “The optimism is in actions like Baidoo,” concludes Vorhauser. ADR rose to $ 150 from just over $ 100 in May. The recovery also started on the automotive stock exchanges. Geely’s shares gained almost 20% in June.

Some US stocks are also more stable

After a slump in the past few months, a selective recovery is also starting in the US, reports Vorhauser. Amazon, for example, has lost 35 percent since the start of the year and is gradually sinking to the bottom in the month that comes to an end. Amazon implemented a 1-in-20 stock split earlier this month. These price breakdowns are considered to be price drivers in the stock market as visually cheaper stock also allows small investors to buy the paper.

According to Richter, wheat is now separated from the chaff for supplies. Netflix lost 35 percent. On the other hand, value stocks in a tech sector such as IBM did better. “Firms generating positive cash flow are again more in demand,” comments Richter on the US market.

“You have to put up with the downturn and invest in the long run,” Richter reminds us. In the long run, it is bullish on the stock exchange. Especially younger people should use this level to get started in the long run. “We currently have an investment dilemma as inflation cannot be compensated in any asset class.”

author: Antje Erhard, June 30, 2022, © Deutsche Börse AG

(Deutsche Börse AG is solely responsible for the content of the column. The articles do not constitute an invitation to buy or sell any securities or other assets.)

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