FRANKFURT (dpa-AFX) – Despite persistently high inflation and therefore increasing concerns about interest rates, the Dax (DAX 40) has recently shown itself to be robust. However, the inflationary pressure in the euro zone remains in the back of investors’ minds and, along with many company figures, is likely to shape the new week. Investors are eagerly awaiting the US labor market report on Friday, which is important for the monetary policy of the US Federal Reserve.
Although the increase in consumer prices in the euro zone had weakened for the fourth month in a row, it was not as strong as expected. “In February, food replaced energy costs as the driver of inflation and stopped the slow downward trend in inflation,” the authors of the Bernecker market letter stated. The persistence of inflation could prove to be a brake on the stock markets.
“Inflation and inflation again and again,” wrote Ulrich Kater, chief economist at Dekabank. He pointed to the danger of a wage-price spiral: consumers would try to claim higher costs for food and energy from their employers. The enforcement rate of these demands is historically high in Germany. “On the other hand, companies will pass these cost increases on in their sales prices, which should further impede the decline in inflation,” says Kater.
On Friday, the Federal Statistical Office will provide further details on February inflation in Germany. According to preliminary data, it was 8.7 percent, the same as in January. Against this background, a further increase in key interest rates by the European Central Bank (ECB) at the next meeting in mid-March is only a matter of form. ECB boss Christine Lagarde even announced further rate hikes beyond March. “The ECB still has a long way to go on the way to raising interest rates,” commented Thomas Gitzel, Chief Economist at VP Bank. You could be forced to catch up with the US Federal Reserve.
The US labor market report on Friday will be particularly interesting for the Fed’s further monetary policy. “Many new jobs were probably created in the USA in February, even if there are likely to be fewer than in January,” wrote Jörg Krämer, chief economist at Commerzbank. This means that the pressure on the Fed to continue raising interest rates remains high. This is underpinned by the latest US inflation figures: the core rate, which excludes volatile energy and food prices, was even slightly higher in January than in December.
“The US economy has obviously not weakened enough to bring inflation back down to two percent,” said Metzler’s chief economist Edgar Walk. The Fed remains in rate hike mode. US Federal Reserve Chairman Jerome Powell should therefore not rule out a rate hike of 0.50 percentage points at the next meeting at the end of March in his speech before Congress on Tuesday.
Rising interest rates make bonds appear more attractive than stocks, but the Dax has recently coped with this problem well. “Even if the competition for stocks is increasing due to rising yields, only the least investors on Europe’s stock exchanges want to know anything about it,” commented market analyst Jochen Stanzl from the trading house CMC Markets. The hope of further rising corporate profits compensates for the fear of the increasingly attractive alternative bond market.
Also in the new week there are numerous company reports on the agenda. Henkel (Henkel vz) and Zalando will present annual figures from the Dax on Tuesday, followed by Brenntag (Brenntag SE), adidas, Symrise and Continental on Wednesday. Deutsche Post and Hannover Re will take stock on Thursday before Daimler Truck concludes the round of figures on Friday.
According to preliminary figures, high costs and an impairment on a stake in Sweden in 2022 have eaten into the profits of the flavor and fragrance manufacturer Symrise. Auto parts supplier and tire maker Continental also remained under pressure last year due to rising costs. So the main focus here should be on the views. Reinsurer Hannover Re had already disappointed investors with its profit target for 2023.
In addition, important January data from German industry are in focus: incoming orders on Tuesday and production on Wednesday provide information on how industry started the new year. “Declining or state-controlled energy costs relieve the burden on companies,” wrote the analysts at Helaba. Nevertheless, an industrial upswing is not yet recognizable in the “hard” industry data, especially since important export markets such as China have recently been less receptive. Although the Helaba experts are expecting incoming orders to be subdued, they are also expecting production to pick up./niw/jsl/he
— By Nicklas Wolf, dpa-AFX —