4.3% in the US and a safe yield of 2.5% for Germany 10-Year government bonds - interest rate expectations continue to soar because there are still no signs of easing on the inflation front. For example, inflation in Great Britain rose by double digits again in September, and producer prices in Germany continue to soar almost unchecked.
In addition to energy prices, food prices rose by almost a quarter. However, producer prices only reach consumers with a time lag, so there is also no peak in inflation rates in sight. Thus, the pressure on the central banks remains high. For the US, the market is pricing in key interest rate increases of up to 5%.
This still leaves a whole percentage point if the Fed adds another 75 basis points at the beginning of November. This means that hopes in the markets that the cycle of interest rate hikes will soon end could soon fade and cause the indices to hit new lows for the year.
Hang Seng Index falls to 13-year lows
A look at the Hang Seng index on the Hong Kong stock exchange impressively shows the impact of rising interest rates on technology companies' valuation. The index fell to a 13-year low on Thursday and has thus almost halved since the beginning of 2021. After emerging speculation about the loosening of the strict COVID rules by the government in Beijing, the market was able to regain some footing, but here, too, the end of the bear market may be a long way off.
The DAX continues to hold surprisingly stable in this mixed situation, with around 700 points separating the index from its low for the year reached at the beginning of the month. If the DAX maintains the current level and there is no major profit-taking, the foundation built in recent days could be quite sustainable for further price gains. At the latest when Wall Street takes note of the reporting season, which is going well.
Overall convincing reporting season
Because this is not going so badly, it is just that investors are finding it difficult to concentrate on the quarterly financial statements of the companies, some of which are well above expectations. This time there was a positive surprise from the streaming provider Netflix (NASDAQ:NFLX).
Earnings per share in the third quarter exceeded expectations. Six months ago, the publication of the figures was followed by a massive slide in the share price, as many investors threw the stock out of their portfolios. After the current figures, the situation looks different. With a weekly increase of 15 percent, the share is outperforming the overall market. However, only the following quarterly reports will show whether the new business model with a cheaper, ad-financed subscription will pay off.
The reaction of the Tesla (NASDAQ:TSLA) stock after record figures of profit and turnover in the third quarter showed how raw the nerves are in the technology sector. Even announced share buybacks and the confirmation of the ambitious sales target of 1.4 million vehicles for 2022 could not compensate for the slight shortfall in sales expectations; the share lost seven percent in a weekly comparison.
IBM (NYSE:IBM) was convincing with its figures and even raised its annual forecast, but it could not turn around the mood on the overall market either. Next week the tech giants Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) will follow with their figures (Thursday), while in Germany SAP (NYSE:SAP) (Tuesday) could become interesting.
Professionals still keep their powder dry
One reason the markets are not moving at the moment could be that most professional market participants are still keeping their powder dry. According to a survey of US fund managers, almost three-quarters of them think cheaper stock market prices are yet to come. They are waiting with high cash holdings for the final sell-off and the capitulation of most investors.
If the prices run away from the fund managers in the coming weeks, they will have to jump on the bandwagon, which should accelerate the upward movement. So we can be curious to see whether the professional majority will be proven right in the end or whether the money that may be pouring into the market will prove them wrong.
DAX - current supports and resistances
- Supports: 12,550/12,500 + 12,400/12,350 + 12,250/12,200
- Resistances: 12,750/12,800 + 12,900/12,950 + 13,000/13,050