Dusseldorf The mood swing on the markets came quickly. Only a day later, the rate hike by the US Federal Reserve is now viewed completely differently. Until midday on Thursday (Central European Time), investors were happy that interest rates would not rise by 75 basis points in the foreseeable future.
But now investors no longer trust the US Federal Reserve that it can fight inflation and save the economy from a violent crash at the same time. Thomas Altmann from the investment house QC Partners is certain: “Among stockbrokers it is considered agreed that the Fed will give priority to combating inflation.” The result was a simultaneous sell-off on the stock and bond markets on Thursday.
This sell-off on the stock market continued on Friday, and the data from the US labor market, which was by no means bad, was only able to limit the losses for a short time. The German leading index went out of trading with a discount of 1.64 percent to 13,674 points.
More jobs were created on the US labor market in April than expected. Last month, 428,000 new jobs were created, compared to only 400,000 expected. The separately calculated unemployment rate remained in April at the previous month’s value of 3.6 percent – a level that should correspond to the full employment target of the central bank Fed.
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“The job engine in the USA is running and running. Since the beginning of 2021, the strong increase in employment has continued seamlessly. The labor shortage is still great,” says economist Bastian Hepperle from the private bank Hauck Aufhäuser Lampe. A sign that the US economy is not going to crash that easily.
There’s good news on inflation too, with average hourly wages continuing to rise but at 0.3 percent for the month, slightly below the 0.4 percent estimate. Year-on-year, earnings rose by 5.5 percent, not quite as much as in March when they were 5.6 percent.
The longer phase of uncertainty was resolved on Thursday on the German stock market with two impulses. One at the beginning of trading led the Dax to the daily high of 14,315 points, the following caused the index to slip to 13,857 points. A trading range of over 450 points is very large compared to the previous trading days.
With this slide, the attempt to overcome the downward trend since the beginning of the year has failed – despite many good reasons that signaled an end. Wednesday’s excursion above the 50-day line, which indicates the medium-term trend, was only a brief interlude. For technical analyst Jörg Scherer from HSBC Germany, yesterday’s trading day was “a missed opportunity”.
Investors should now turn their gaze back towards 13,800 to 13,500 points. The low for April was 13,566 points. If this mark does not hold, the psychologically important mark of 13,000 points will come into focus, including the low for the year of 12,438 points, which was reached at the beginning of March.
Turbulent rise in yields
The bond market was also turbulent. There, the yield on ten-year US government bonds rose to 3.066 percent on Thursday, the highest level since November 2018. This trend continued on Friday, and this value is now 3.0927 percent. Bond prices fall when yields rise.
The ten-year federal bond reached 1.055 percent on Thursday around 6.30 p.m., its highest level since 2014. At 2.30 p.m. the value was 0.917 percent. A 14 percent rise in the bond market in four hours is an unusual occurrence and underscores the sell-off sentiment. This trend continued on Friday, the new multi-year high is 1.143 percent.
Bitcoin keeps slipping
The reassessment of the US interest rate hike also had an impact on other asset classes. Bitcoin had already fallen by more than ten percent at its peak on Thursday evening. This sell-off continued on Friday. The cryptocurrency has since slipped to $36,383, down around nine percent.
Look at individual values
Rheinmetall: The Düsseldorf group started the year with an increase in profits. CEO Armin Papperger sees the group on the right track to achieving its annual targets, which envisage sales growth and a return of over eleven percent. The share still loses 2.8 percent. The paper has more than doubled since the start of the Ukraine war.
ING: The largest bank in the Netherlands reported a slump in profits at the start of the year and did worse than expected. “The geopolitical situation has also impacted our financial results, as the increased risk of our exposure to Russia has led to additional provisions in our wholesale business,” the board said. The stock loses 5.7 percent of its value.
Krones: The beverage bottling plant manufacturer remains optimistic after the first quarter. For this reason, the share rose by 4.3 percent. For the year as a whole, sales growth will probably be in the upper range of the forecast range of five to eight percent if the Ukraine war or longer China lockdowns don’t thwart Krones. The operating return on sales should be between eight and nine percent; in the first quarter it was 8.8 percent.
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