Inflation has hit the stock markets

“I think I was wrong about inflation,” US Treasury Secretary Janet Yellen recently reported. Yellen, who served as Federal Reserve Chair from 2014 to 2018, also provided a reason: “There have been unforeseen and large shocks to the economy that have driven up energy and food prices, and supply shortages that are affecting our… severely impacted the economy, but we recognize that now.”

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Well, it’s nice that the Treasury Secretary and her successor as Fed Chair Jerome Powell believe they can bring inflation under control before the end of this year, but that’s not what most citizens expect. “Do you really think that once the supply chains are back in order, all the food companies are going to lower the increased prices? Do you think eggs will get cheaper again? These high prices will remain,” the “Neue Zürcher Zeitung” quoted a passer-by in the capital as saying. Indeed, it can no longer be said that America’s inflation problem is temporary, as President Joe Biden and his ministers have always said, but that it persists.

Inflation seems to be solidifying on this side of the Atlantic too. In the EU, the inflation rate rose again significantly in May and reached 8.1 percent. 7.9 percent were in Germany. This means that the price increase is as massive as it was at the record level of 1973/74. The inflation forecasts were also raised by the European Central Bank on Thursday. It now projects an annual inflation rate of 6.8 percent in 2022 before contracting to 3.5 percent in 2023.

Now that the European Central Bank (ECB) has finally announced that it will take the issue of inflation seriously in the future, the question is whether inflation can still be tamed in time or whether it is getting out of control. There are enough reasons for this; the most important are the risk of further mutual price escalation in the supply chains and the emergence of a wage-price spiral.

Both Biden and the top European politicians primarily blame “Putin’s war in Ukraine” and the problems it caused in the supply chain for the enormous price increases, but it’s not that simple. Now the bill for the overly expansive monetary policy of the past few years is also being paid. No wonder inflation and economic concerns accelerated the recent slide on US stock markets on Friday. The leading index Dow Jones Industrial lost 2.7 percent to 31,393 points. On a weekly basis, this means a minus of 4.6 percent. The market-wide S&P 500 fell 2.9 percent to 3,901 points on Friday. The tech-heavy NASDAQ 100 fell 3.6 percent to 1,833 points. All three indices recorded their largest weekly loss since January.

Politics bypassing the concerns of the citizens

Now it’s here, the inflation

“After the US inflation rate fell in April, speculation had increased that the peak had been passed,” writes analyst Christoph Balz from Commerzbank. With the renewed increase, this has now been done. Rather, the details of the latest figures showed that inflationary pressures remain broad-based. Many market participants are now expecting the Fed to raise interest rates by as much as 0.75 percentage points at the July meeting.

Among the individual stocks, bank stocks recorded particularly significant losses. Investors fear that the central banks could tend towards an even tighter monetary policy course in view of the ever-rising inflation – with larger interest rate hikes than previously assumed. Although banks are seen as the beneficiaries of rising interest rates, excessively tough monetary policy can stifle economic growth and slow demand for credit. Goldman Sachs, among the Dow’s biggest losers, fell 5.7 percent and JPMorgan 4.6 percent.

DocuSign’s shares fell by almost a quarter, making it the clear loser on the Nasdaq 100. The e-signature platform had presented disappointing quarterly figures. The company’s revenue momentum deteriorated again in the first fiscal quarter. Shares in cosmetics maker Revlon plummeted 53 percent, posting the biggest one-day percentage loss in its history. Traders referred to speculation about an impending bankruptcy filing.

turning point

Inflation is dynamite for politics

The prices on the German stock market had already fallen significantly beforehand. Experts warned of falling corporate profits, a further deterioration in consumer sentiment and ultimately the economy slipping into recession. Given these scenarios, the Dax fell below the 14,000 point mark and closed 3.1 percent lower at 13,762 points. It was his fourth day of losses in a row, so the weekly balance sheet is also very weak at minus 4.8 percent. The MDAX of medium-sized stocks lost three percent to 28,767 points.

Concerns about the economy in view of high inflation and rising interest rates weighed on bank stocks across Europe. Banks actually benefit from higher interest rates, but it is of little use to them if the economy cools down significantly at the same time. Deutsche Bank shares lost 5.9 percent at the end of the Dax. Commerzbank’s shares fell by 5.6 percent among the weakest values ​​in the MDax. Against the background of the turnaround in interest rates in the euro zone, real estate values ​​were also weak. Vonovia lost 3.3 percent, and TAG Immobilien lost 6.3 percent in the MDax. Instone even slipped by 13 percent including dividend deduction in the SDAX. Knorr- Bremse got off relatively lightly with a drop of 0.8 percent. A fresh buy recommendation from Citigroup supported the shares of the manufacturer of braking systems.


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