DAX: inflation and interest rates remain key issues

Consolidation was the Frankfurt Stock Exchange’s motto last week. After the price fireworks in response to the weaker than expected decline in the US in October, it was time for a breather. Growth of more than 20% since the low of the year in early October raises the question of whether this was the last firework or whether the optimism in the markets will last until the end of the year. ‘year.

On the positive side of the DAX is the much improved picture from a technical perspective with the crossing of the 200 day line and the breakout of the year to date downtrend. On the debit side are the 2,500 point gains of the past six weeks and the resulting temptation to take some of those profits. And whether the market has received proof with the October inflation in the United States that the peak of the price increase has also been reached, we cannot say for sure.

Missile launch in Poland

The fragility of the foundations of the current recovery while the war in Europe could escalate at any time was also shown in the middle of the week by the stock market’s reaction to the first reports of a missile strike in Poland, a NATO country. . The later realization that it was part of a Ukrainian defense missile brought relief.

However, the development clearly shows how nervous investors are about this issue, and rightly so. Uncertainty remains over whether and when the US Federal Reserve will pause its interest rate hike cycle. Board members, at least, never tire of pointing out that there is still a lot of work ahead of the Fed.

Governor Bullard sees the peak in key interest rates between 5% and 7%, while the market is currently only pricing in the lower end of this range. The verbal tussle between monetary policy and the financial market will likely continue over the coming week.

The next facts will not be known until the December 14 Fed meeting. What happens to Chinese interest rates will be decided on the first trading day of next week. In the latest monetary policy report, the central bank warned of a possible increase in inflationary pressures in the future but still wants to maintain the growth of money supply and loans and thus ensure sufficient liquidity in the economy. .

Christmas business becomes a litmus test

The upcoming Christmas season could also answer the crucial question of where the stock market will go in the coming months. Consumption is the pillar that supports the economy, but also its Achilles heel. The litmus test will be whether or not people will let rising prices and the cost of living spoil their festive spending mood.

The corporate warnings, at least, don’t end. After Apple (NASDAQ:) and Amazon (NASDAQ:), U.S. retailer Target (NYSE:) also issued a grim forecast this week, and its shares fell double digits. By contrast, Siemens’ (OTC:) share rose to more than seven percent.

In Munich, the exercise is going much better than expected. For 2022, the company expects an increase in turnover of up to 9%. Especially in the future area of ​​digitization, Siemens expects double-digit growth rates. It is a strong signal that in times of economic uncertainty, Siemens’ order books are full.

The price-wage spiral begins

As a result of collective bargaining, wages in the German metal and electrical industry will increase by 8.5% over the next two years. On the other hand, what is positive for the purchasing power of employees triggers a dangerous price-wage spiral which today is turning much faster than in the past.

This brings another pilot into play. With each sector that now follows suit, the effect intensifies. According to the head of the German Council of Economic Experts, the situation on the price front will not return to normal before 2024. Thus, the pressure remains on the European Central Bank and, consequently, on the stock market, which fears a rise interest rates like the devil fears holy water.

DAX – current supports and resistances

  • Support: 14150/14100+14050/14000+13850/13800
  • Resistances: 14,350/14,400 + 14,550/14,600 + 14,750/14,800

Leslie M. Gill