Earnings growth drives markets, producer prices drive inflation
For the second quarter, many companies expect high earnings growth compared to the same quarter last year, which was heavily weighed down by Corona. This supported equity markets in June, while rising producer prices pushed up inflation worldwide.
The stock markets performed largely well in June. The German DAX index did not rise quite as strongly as the broad European Stoxx Europe 600 index, which rose by 0.71% and 1.36% respectively. Hong Kong's Hang Seng Index closed the month with a surplus in height of 1.99%. Global equities climbed 4.64% - all index figures in euro terms.
The euro depreciated sharply against the U.S. dollar, from $1.223 to $1.186, as market participants anticipated possible earlier interest rate hikes from the U.S. Federal Reserve (Fed). The majority of Fed members now expect two rate hikes as of 2023 as inflation in the U.S. and globally has accelerated further recently. In the USA inflation rose to 5.0% and the core rate (excluding energy and food) to 3.8% year-on-year. In the euro zone inflation rose from 1.6% to 1.9% approaching the target set by the European Central Bank (ECB) while the core rate remained stable at 0.9%. Inflation was driven primarily by producer prices. These rose in Germany by 7.2% year-on-year in June, the highest rate since 2008, while in the USA they increased by 8.7%.
The ECB raised its inflation forecast for the current year from 1.5% to 1.9%, but at the same time confirmed that it would maintain its bond-buying program. The same applies to the Fed: It confirmed its bond purchases and raised its inflation forecast for 2021 from 2.2% to 3.0%. For 2022, however, it raised its forecast only slightly from 2.1% to 2.2%, suggesting that the current strong rise in inflation is a temporary phenomenon for the Fed. The gold price suffered from the strengthening dollar and gave back all the gains of previous month. Gold thus fell significantly in price from USD 1,906 to USD 1,765/troz - despite its character as an anchor of stability in times of rising inflation.
The stock markets, on the other hand, benefited above all from further improvements in economic indicators. The purchasing managers' indices for industry and services in Germany and the euro zone continued to rise or confirmed their high level. In the USA, the purchasing managers' index for industry reached its highest level since October 2009 and its counterpart for the service sector marked its highest level since 1997. The stock markets also benefited from the debate on a US infrastructure program worth $950 billion. The earnings expectations of companies in the S&P 500 Index also had a positive effect with second-quarter earnings around 60% higher during the same period last year, which was impacted by Corona.
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