Market Report
The Fed’s rate hike was bigger than many expected. However, the rate cut only led to a short-term rally in the stock market. All major US indices ended the trading day with losses after initial gains.
After the long-awaited U.S. interest rate decision, prices on the New York Stock Exchange turned negative at the end of trading. The Dow Jones Industrial Average fell 0.25% to 41,503 points, its third consecutive record. By the end of trading, the S&P 500 Index was down 0.29%, while the tech-heavy Nasdaq 100 Index was down 0.45%.
Thomas Altmann, portfolio manager at asset management firm QC Partners, said the initial reaction from the stock exchanges was “somewhat manageable, given that the massive decline was only anticipated by a few players.” However, since the start of the year, the three indices have already posted double-digit gains in anticipation of falling interest rates.
The US Federal Reserve cut its benchmark interest rate by 0.50 percentage points to 4.75-5.00%. Before that, she had not touched it for 14 consecutive months. Most economists expected a rate cut of 0.25 percentage points. However, recently, expectations have grown in the financial market that there could be a large cut of 0.50 percentage points. It was also announced that a narrow majority of Fed voting members expect another large rate cut in 2024.
“The Fed is picking up the pace,” says Bastian Hepperle, an economist at Hauck Aufhäuser Lamp Private Bank. Apparently the central bank’s own monetary policy process was too strict. “If the economy and inflation do not thwart the central bank’s plans, the sharp decline in interest rates will continue in the coming months.” Futures markets expect the trend to continue in November, perhaps by 0.4 percentage points.
The DAX traded little changed on the left before the Fed’s interest rate decision. The German stock index was unchanged until the end of trading, down 0.08% at 18,712 points.
The German industry has seen its order backlog increase again for the first time this year. In July, adjusted for season and calendar, it rose by 1.0% compared to the previous month, according to the Federal Statistical Office. “This is the first monthly increase in the order backlog since December 2023,” the authorities said. However, compared to the same month last year, it decreased by 4.3% due to calendar adjustments.
However, the decline in apartment building permits continued into the early second half of the year. According to the Federal Statistical Office, the number in July was 17,000, down 19.2% from the same month last year. As of July 2022, it would be down 44.6%. The reasons for the decline include increased financing and construction costs. Industry associations are also complaining about excessive bureaucracy.
Inflation in the euro zone has weakened significantly, reaching its lowest level in three years. Consumer prices rose 2.2% year-on-year in August, according to the second estimate released today by Eurostat. The inflation rate in the common currency area is now lower than it was in the summer of 2021.
Oil prices have paused their recovery during the recent trading day. At night, the price of a North Sea Brent barrel for November delivery was $73.17, 0.71% lower than the previous day. The price of US West Texas Intermediate (WTI) crude for October delivery was down 0.73% at $69.41 a barrel.
According to media reports, Ludwigshafen-based chemicals giant BASF plans to prepare its agricultural business for an IPO in the coming years. BASF plans to announce a series of restructuring measures this month, including future plans for its agricultural and coatings businesses, Bloomberg reported today, citing sources familiar with the matter. BASF shares briefly rose to the top of the DAX after the news broke.
Google has won a European Union (EU) court battle over a €1.49 billion competition fine. The judge ruled that the European Commission had not sufficiently proven that the Alphabet subsidiary had abused its dominant position in search engine advertising with its AdSense for Search service. The ruling can still be appealed to the European Court of Justice.
According to insiders, the Federal Finance Ministry wants to sell the remaining Commerzbank shares of the federal government as planned despite interest from UniCredit. The goal is to sell the shares at the highest possible price, even if the Italian lender acquires more shares, a source familiar with the matter told Bloomberg. However, Commerzbank CFO Bettina Orlopp urged the federal government to postpone the additional share sale, given the possibility of a bank takeover.
Lufthansa and Air France-KLM have suspended flights to Israel until at least Thursday after a suspected joint bombing of hundreds of portable radio receivers in Lebanon. Both airlines blamed the short-term change in security conditions. Lufthansa Group airlines have decided to immediately suspend all flights to and from Tel Aviv, as well as all connections to and from the Iranian capital Tehran, the company said. Both Israeli and Iranian airspace will be circumvented.
Vonovia, Germany’s largest real estate group, is set to take over its subsidiary Deutsche Wohnen in a full takeover. The aim is a control and profit transfer deal, the companies announced in the evening. Deutsche Wohnen’s external shareholders will have to sell their shares for newly issued Vonovia shares. There are also plans to pay annual compensation during the term of the deal. The exact design is still being determined.
After weeks of struggle with promissory note creditors, ailing battery manufacturer Varta has agreed to a restructuring plan. The company announced today that its main financial lenders and major shareholders Michael Tojner and Porsche have agreed to an improved settlement. This means that promissory note creditors have also agreed to the restructuring plan on the basis of changed terms.
Saudi Aramco, the world’s largest oil producer, wants to become a major player in the liquefied natural gas (LNG) business. Abdulkarim Al-Ghamdi, Aramco’s head of natural gas, says the company has already taken the first steps toward that end. Last year, the Saudi oil giant bought a minority stake in MidOcean Energy from EIG Global Energy Partners for $500 million, its first foray into the overseas LNG market. This month, Aramco increased its stake to 49 percent.
Software company Microsoft and asset management firm BlackRock are looking to create a $30 billion-plus artificial intelligence (AI) investment fund. The companies say the fund’s capital should be used to build data centers and energy projects to meet growing demand in the AI sector. Abu Dhabi-based investment firm MGX is a partner, and AI chipmaker Nvidia is providing expertise.
Austrian businessman Stefan Pierer is selling most of the Nuremberg cable and wiring specialist Leoni, which he acquired last year, to China. Leoni said 50.1 percent of Leoni AG’s shares will go to electronics supplier Luxshare. A spokeswoman said the deal is worth “mid-three-figure millions.” Leoni’s cable division will be given a 100 percent stake in the joint venture led by Luxshare. Competition authorities still have to give their approval.
The ailing Swiss solar manufacturer Meyer Burger wants to cut jobs. The company said that “particularly due to the significant rationalization of the entire group structure, the number of employees worldwide is expected to decrease from the current 1,050 to 850 by the end of 2025.” Job cuts are expected in Europe in particular, while expansion is planned in the United States. With the restructuring, Meyer Burger wants to become profitable again.
The traditional piano and grand piano manufacturer Grotrian-Steinweg has filed for bankruptcy. This was announced by the Braunschweig District Court. According to the IG Metall trade union, around 35 employees are affected. Grotrian-Steinweg is one of the oldest piano manufacturers in the world. The traditional company traces its roots back to 1835, when Heinrich Steinweg founded a piano manufacturing company in Wolfenbüttel near Braunschweig. Since 2015, the company has been part of the Parsons Music Group in Hong Kong.
Tupperware, a long-suffering American storage container manufacturer, has filed for protection from its creditors under U.S. law. “The company’s financial condition has been significantly impacted by the recent difficult macroeconomic environment,” said CEO Laurie Goldman. She announced that she would seek court approval to continue selling products and developing sales processes.
A software update by Lufthansa Cargo has paralyzed a crucial part of the cargo airline’s operations. A technical issue on Tuesday night halted the delivery and reception of import and export cargo at the Frankfurt and Munich hubs until Tuesday evening, the Lufthansa Cargo subsidiary announced on its website. A company spokesperson said the issue has now been resolved. However, the backlog of deliveries due to the issue continues to be affected. The company’s announcement also mentioned flight cancellations and restrictions on European traffic until Friday evening.
Munich chip company Infineon wants to build a mobile quantum computer for the military, police and crisis operations. According to an announcement from the Federal Ministry of the Interior and the Cyber Agency of the Federal Ministry of Defence, Infineon, along with its British partner Oxford Ionics and two other consortia, has been selected to build such an ultra-fast computer within three years.
Deutsche Bank is to close some of its smaller branches while offering more advice to private clients via video and telephone. The DAX Group announced that its on-site personal advice offering in Frankfurt will be supplemented by significantly increased advice capacity via video and telephone. It said a “mid-double-digit” number of smaller branches will be closed. Deutsche Bank currently operates around 400 branches in Germany.
With continued growth in mind, T-Mobile has announced a multi-billion dollar dividend to shareholders. The company will provide up to $50 billion in dividends and share repurchases through 2027, company CEO Mike Sievert said at an investor day today. His company also wants to bring 12 million customers to its 5G mobile network by 2028. A key element in achieving its growth goals is artificial intelligence (AI). T-Mobile is working with chipmaker NVIDIA and telecom equipment suppliers Nokia and Ericsson to improve network quality. AI should always be used to provide maximum network capacity to customers.
In light of the strike at its Seattle plant, U.S. aircraft manufacturer Boeing has announced it will temporarily lay off workers and managers. The furloughs are expected to begin in the coming days and will affect tens of thousands of employees. The goal is to save money. During the strike, employees will be laid off for one week every four weeks. In Seattle, about 33,000 Boeing workers went on strike Friday after rejecting the company’s collective bargaining offer, which would have increased their pay by 25 percent over the years. The union is demanding a 40 percent pay increase and improved severance pay.
