This week's surprise was undoubtedly the Bank of England's announced bond purchases to "restore order to the bond market." So QE instead of QT, Quantitative Easing instead of Tightening is the name of the game in the UK.
The move could set a precedent and find imitators in the coming months with the Federal Reserve in Washington and the European Central Bank in Frankfurt, at least that is the hope of investors who are not exactly spoiled by monetary policy at the moment.
A short squeeze then ensured a wild ride across all asset classes, and the DAX jumped up again by almost 400 points after a new two-year low at 11,860 points.
Bank Of England Intervenes - A Glimmer Of Hope Or Warning Signal?
The BoE's move was preceded by an exceptionally sharp slide in the British pound against the US dollar. The currency slumped by almost five percent in reaction to the massive tax cuts announced in the UK.
The euro continued to plummet following the election result from Italy, continuing the nose-down trend inexorably like all other markets. The seemingly unstoppable rise of the greenback worries the world's financial markets.
Speculation about a new financial crisis is doing the rounds on the trading floor. The surprising step of the British central bank is a warning signal, despite all the hope for a change of course in monetary policy.
Another of these is likely to be the GfK consumer climate index, which shows that consumer sentiment in Germany is as bad as it has ever been. Inflation is reducing consumers' purchasing power, and their outlook for the future does not bode well.
It was primarily the skyrocketing prices for gas, oil, and electricity that caused income expectations to fall to a record low of 67.7 points. The index is a mirror image of what is happening in the stock markets. A lot of pessimism and even more uncertainty indicate that the market will likely face a few more difficult months.
Porsche Pulls Off The IPO
The IPO of the sports car manufacturer Porsche can be seen as a ray of hope in all this confusion. During these highly uncertain times, the Stuttgart company dared to step onto the Frankfurt stock exchange.
The shares were issued at the upper end of the price range at 82.50 euros. The first price was 84 euros and is now hovering around the issue price. In a stock market year in which the DAX has lost 25 percent and the signs for the future with inflation, recession, and geopolitical uncertainty are anything but positive, this is a success.
Perhaps a special case because investors are also going for the stock because Porsche earns margins that other companies can only dream of. Nevertheless, it must be said: Hats off - most companies would have canceled the IPO.
US Labor Market?
In the coming week, the calendar will warm up with a few purchasing managers' indices from the USA and the Eurozone for the highlight of the week, as on every first Friday of the month: the September figures from the US labor market will be released.
And there is no sign of recession yet. The number of initial jobless claims fell last week by 16,000 to below 200,000 for the first time since June. So despite the economy shrinking by 0.6 percent in the second quarter, the situation in the labor market remains robust.
A dilemma for the central bank: as long as companies are looking for employees rather than laying them off, the resulting wage pressure will keep inflation up. So the Fed has to force a recession even more strongly to stop price increases, which is unlikely to go down well on the stock market.
DAX - Current Supports And Resistances:
- Supports: 11,900/11,850 + 11,600/11,550 + 11,250/11,200
- Resistances: 12,150/12,200 + 12,350/12,400 + 12,550/12,600