Decrease in US inflation causes Dax leap of joy

US inflation slowed more than expected in July. This reduces the pressure on the US Federal Reserve to continue aggressively raising interest rates. And if the Fed can hike more slowly and by less, that’s good news for the bond market, for the stock market, and for the US economy as a whole.

The consumer price index rose 8.5 percent from the same month last year after rising 9.1 percent last month and hitting a 40-year high. Experts had expected an increase of 8.7 percent.

The so-called core inflation, which excludes the more volatile components food and energy, rose by 5.9 percent compared to the same month last year.

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The decline at least indicates that inflation has peaked and that the US Federal Reserve increased by “only” 50 basis points in September. For Thomas Altmann from investment house QC Partners, “today could be a turning point. There is a good chance inflation has peaked.” Because for the first time in more than two years, prices are not increasing in a monthly comparison.

Accordingly, the expectations of investment professionals for the forthcoming meeting of the US Federal Reserve Bank on September 21 have changed drastically. According to the Chicago futures exchange’s Fed Watch tool, more than two-thirds of investment professionals now only expect an increase of 50 basis points, while 30 percent believe in an increase of 75 basis points. Before the inflation data, the ratio was almost exactly the opposite.

With these gains on Wednesday, the Frankfurt benchmark is rising again in the direction of the movement high of 13,792 points, which was reached on Thursday last week. Accordingly, prices above 13,800 should give a signal for the continuation of the 1400-point rally.

So far, the Dax has only lost around 2.5 percent in this ongoing consolidation. Four to five percent are usual in such phases, which would mean prices between 13,100 and 13,000 points. Since there are important resistances in this area anyway, this psychologically important brand is also relevant on the underside. However, as long as this area holds, the rally that has been ongoing since July will remain intact.

There has also been an upward trend on a weekly basis since mid-July. Accordingly, there was a new high and no further low in every trading week, which corresponds to the classic definition of such a trend.

Continuing this trend in the current trading week is ambitious, but feasible according to the inflation data. To do this, the Dax would have to rise above 13,792 points this week during the ongoing consolidation and must not fall below last week’s low of 13,388 points.

US yield curve as inverted as it was last in 2000

Is there a recession? To this question comes a resounding “yes” from the US bond market. Because the US yield curve is as inverted as it was last in 2000. The yield on two-year US bonds is 3.27 percent, while the yield on ten-year bonds is 2.76 percent.

An inverted yield curve is a well-regarded early warning indicator of a possible impending recession. At the beginning of the century this was followed by inverse curve two quarters with significantly declining economic output

Meanwhile, investors grabbed German government bonds. In return, the yield on the ten-year federal bond fell to 0.91 percent. Investors on the bond market were now firmly counting on a second interest rate hike by the European Central Bank of 0.5 percentage points in September. “The ECB will definitely try to frontload as much as possible,” said Ben Laidler, strategist at broker eToro. “I think that makes sense considering they started the race too late.” The ECB started its tightening cycle well later than the Fed, raising interest rates by 0.5 percentage point in July.

Look at the individual values

Evotec: The shares rush 11.5 percent down. According to a trader, Morgan Stanley downgraded the stocks from overweight to underweight.

Heidelberg pressure: A strong increase in earnings catapulted the shares over 16 percent upwards. In addition to the operating result, incoming orders and sales also exceeded estimates in advance, said a dealer.

eon: The energy company is not one of the beneficiaries of the energy price crisis. Although the company confirmed its forecast for the current year on Wednesday, the high prices for electricity and gas also weighed on the results of the Essen-based company in the second quarter. After initial losses, the stock is trading unchanged.

Sixt: The car rental company is benefiting from the post-Corona travel boom and the high prices for rental cars. However, this is not rewarded on the stock exchange. The stock falls 6 percent.

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