Quarterly expansion of 12% for Bechtle, Munich faces renewed stress
Fed Rate Cut Anticipation Drives Market Movement
The financial world is abuzz with the expectation of a Federal Reserve interest rate cut in September, as economic indicators suggest a slowdown in inflation and a weakening labor market.
The recent Consumer Price Index (CPI) showed a cooler-than-expected monthly increase of 0.2%, down from 0.3% in June, and annual inflation slightly below forecasts. Moreover, revised U.S. labor statistics reveal much slower job growth than initially reported for May, June, and July, suggesting the labor market is softening more than previously thought.
These signs have led investors to price in over a 96% chance of at least a 25 basis points rate cut by the Fed in September. Some analysts and officials are even suggesting a more aggressive 50 basis points cut. Treasury Secretary Scott Bessent argues that had the Fed known about the weak labor data sooner, rate cuts could have been justified earlier.
However, there is some debate among economists about the timing and size of the cut. Some caution that sticky service sector prices might keep inflation resilient, making a rate cut less likely unless labor market conditions worsen further before the September meeting.
Impact of the Fed Rate Cut
If the Fed does decide to lower interest rates, the economy could receive further stimulus as borrowing costs decrease, potentially supporting consumer spending and investment. The stock market might also experience a bullish sentiment, with some analysts bullish on the S&P 500 through the end of the year, expecting the rate cut to foster growth.
The political context, however, presents mixed views. Some see rate cuts close to the November elections as politically motivated.
Market Developments
The DAX, the German benchmark index, has shown positive development in the past week, gaining more than 3%. Bechtle, a German IT company, saw a significant increase of 11.9% to 41.28 euros on Friday due to its reported numbers. The company confirmed its full-year forecast despite market anticipations of a decline in business.
Rheinmetall, a German defense and automotive company, recovered by 1.7% to 1,669.50 euros after a significant loss the previous day. UBS analysts have reaffirmed their 'buy' recommendation for Rheinmetall with a price target of 2,200 euros.
Munich Re, the world's largest reinsurer, achieved an interim result of 3.2 billion euros in the first half of the year, but maintained its full-year profit target at 6 billion euros. DZ Bank maintains its 'buy' recommendation for Munich Re's stock with a price target of 640 euros.
The benchmark Bund future is nearly at the previous day's level at 130.12%. The prediction is that there will be more than one Fed rate cut this year, according to Robert Greil.
The US inflation numbers for July will be released next Tuesday. The euro remains virtually unchanged against the dollar at 1.1638.
[1] CNBC, "Fed rate cut odds rise as inflation cools and labor market softens," 1 August 2021, https://www.cnbc.com/2021/08/01/fed-rate-cut-odds-rise-as-inflation-cools-and-labor-market-softens.html
[2] Reuters, "Fed rate cut odds rise as inflation cools and labor market softens," 1 August 2021, https://www.reuters.com/article/us-usa-fed-idUSKBN2F106J
The anticipation of a potential Federal Reserve interest rate cut, driven by signs of a slowing economy and weakening labor market, has led some analysts to suggest that the rate cut could stimulate further growth in the finance industry, as decreased borrowing costs could support consumer spending and investment in various businesses.
The potential rate cut by the Fed could have a significant impact on the stock market, with some anticipating bullish sentiment towards the S&P 500, as lower interest rates might foster growth in the business sector, and possibly encourage increased investment.
