“Higher for longer”: After this week’s Federal Reserve meeting, the market now, firstly, assumes that key US interest rates will not rise further and, secondly, expects that the “longest” is not too long. Although it was actually a press conference with little informative content, once again investors preferred to listen to the words between the lines of Wednesday and what Fed Chairman Powell did not say. The stock market is now celebrating the end of the rate hike cycle, yields are returning and stocks are kicking off November with a fireworks show after a dismal October. Just be careful: yields shouldn’t fall too much, the Fed should have sounded the alarm and react immediately if it realizes that the market is no longer taking it seriously. The Federal Reserve’s stance was later confirmed by labor market data. Comparatively few new jobs were created in October, 150,000; 180,000 were expected, compared to almost double that in September.
The price sets off the fireworks.
The DAX may have started something this week that no one believed in anymore: the year-end rally. Thanks in part to new monthly liquidity from investors, the market experienced a 600 point rally after the Federal Reserve meeting and reached the 15,000 mark with impressive ease and speed. Hopes that the prolonged pause in US interest rates would lead to the end of the rate hike cycle also boosted prices on Wall Street, brightening the technical picture across all indices. The situation on the Frankfurt Stock Exchange also looks much better this weekend than it did a week ago. The 200-day line around 15,350 points now awaits the DAX, and the unexpected recovery is likely to stop there for the time being.
The “crane” takes off again
Lufthansa is now also much better again. Germany’s largest airline should have finally overcome the consequences of the coronavirus pandemic. The company can look back on its best financial quarter since 2017. This is due to increased ticket prices following the pandemic, combined with significantly higher passenger numbers. In total, the company earned 1.2 billion euros in the third quarter, an increase of almost 50 percent compared to the same period last year. Lufthansa also foresees further growth in the future and utilization close to the capacity limit. In fact, this is exactly what investors want to hear and read today. And therefore also an ideal starting position from which the stock, which has been under strong pressure for several weeks, should benefit again.
WeWork, a company that a few years ago was valued as the most valuable startup at $47 billion, is on the verge of filing for insolvency, according to media reports. The global coworking space provider is apparently bankrupt. Two years ago, the shares were still trading at $600, but after a further 50 percent drop this week, they are now trading at just over a dollar. The company is no longer worth $100 million. WeWork has thus become a negative example of hype that the company itself could not turn into a successful business model.
What will happen next week?
Next week will be quiet, at least as far as economic data is concerned. Stock market attention is likely to focus on new figures from China; Tuesday’s trade balance and Thursday’s consumer and producer prices should shed light on whether the second-largest economy will soon be back on track or whether economic momentum will continue to be lacking. The peak of the reporting season should also be behind us, at least as far as the pioneering US tech companies are concerned. Companies set to report on the DAX next week include Bayer (OTC:), Commerzbank ( ETR:), E.on and Deutsche Telekom (OTC:). The latter already benefited last week from reports that the company intends to pay more money to its shareholders. The dividend will increase by ten percent and a share buyback program worth two billion euros will be launched. In other words, share prices are cosmetic in Bonn, but perhaps more of the same on the DAX in Frankfurt next week.
DAX – current supports and resistances:
Supports: 15,150/15,100 + 15,050/15,000 + 14,900/14,850
Resistances: 15,200/15,250 + 15,300/15,350 + 15,450/15,500
This article is from RoboMarkets.