"Higher for longer" - after this week's Federal Reserve meeting, the market now firstly assumes that key interest rates in the US will not go any higher and secondly hopes that the "longer" won't be too long. Even if it was actually a press conference with little news content, once again investors preferred to hear the words between the lines on Wednesday and what Fed Chairman Powell did not say. The stock market is now celebrating the end of the rate hike cycle, yields are coming back and shares are starting November with a firework display after a lousy October. Just be careful: yields should not fall too much, the Fed should have set an alarm and react immediately if it realises that the market is no longer taking it seriously. The Fed's stance was then confirmed by the labour market data. At 150,000, comparatively few new jobs were created in October; 180,000 were expected, compared with almost twice as many in September.
The DAX ignites price fireworks
The DAX may have started something this week that nobody believed in anymore: the year-end rally. Thanks in part to fresh monthly liquidity from investors, the market staged a 600-point rally after the Fed meeting and took the 15,000 mark with impressive ease and speed. Hopes that the extended interest rate pause in the US would lead to an end to the cycle of rate hikes also boosted prices on Wall Street, brightening the technical picture across all indices. The situation on the Frankfurt Stock Exchange also looks much better this weekend than it did a week ago. The 200-day line at around 15,350 points now awaits the DAX, and the recovery from nowhere is likely to be halted there for the time being.
The “crane” takes off again
Lufthansa is now also doing much better again. Germany's largest airline should have finally left the aftermath of the coronavirus pandemic behind it. The company can look back on its best financial quarter since 2017. This is due to the rise in ticket prices following the pandemic in combination with significantly higher passenger numbers. Overall, the company earned EUR 1.2 billion in the third quarter, an increase of almost 50 per cent compared to the same period last year. Lufthansa also sees further growth in the future and utilisation close to the capacity limit. In fact, this is exactly what investors want to hear and read these days. And thus also an ideal starting position from which the share, which has been under heavy pressure for several weeks, should benefit again.
WeWork crashes
WeWork, a company that a few years ago was valued as the most valuable start-up at USD 47 billion, is on the verge of filing for insolvency according to media reports. The global provider of co-working spaces is apparently bankrupt. Two years ago, the shares were still trading at 600 US dollars, but after a further 50 per cent drop this week, they are now trading at just over one dollar. The company is now no longer worth 100 million dollars. WeWork has thus become a negative example of a hype that the company itself was unable to turn into a successful business model.
What will happen in the coming week?
The coming week will be quiet, at least as far as economic data is concerned. The stock market's attention is likely to be focussed on new figures from China; the trade balance on Tuesday and consumer and producer prices on Thursday should shed light on whether the second-largest economy can soon be counted on again or whether economic momentum will continue to be lacking. The peak of the reporting season should also be behind us, at least as far as the pioneering technology companies from the USA are concerned. Companies reporting on the DAX in the coming week include Bayer (OTC:BAYRY), Commerzbank (ETR:CBKG), E.on and Deutsche Telekom (OTC:DTEGY). The latter already benefited last week from reports that the company intends to pay out more money to its shareholders. The dividend is to be raised by ten per cent and a share buyback programme with a volume of two billion euros is to be launched. In other words, share price cosmetics in Bonn - but perhaps more of the same in the DAX in Frankfurt next week.
DAX - current supports and resistances:
Supports: 15,150/15,100 + 15,050/15,000 + 14,900/14,850
Resistances: 15,200/15,250 + 15,300/15,350 + 15,450/15,500
This article is from RoboMarkets.