Companies report good figures

In July, most equity markets recovered some ground from the losses of the previous months. The recovery is likely to be primarily due to the start of the second quarter 2022 reporting season, which has so far been better than expected on both sides of the Atlantic.

Most stock markets recovered in July. The German stock index DAX gained 5.48%, the broad European index STOXX EUROPE 600 rose by 7.64%. In the USA, the S&P 500 achieved a plus of 12.17%. Hong Kong's Hang Seng Index, on the other hand, was down -5.24%. Overall, global equities - as measured by the MSCI World - gained 10.89%.

The rally in equity markets is also likely due to the start of the second quarter 2022 reporting season. Corporate results on both sides of the Atlantic have so far been better than expected. The strong corporate figures were met with pessimistic investor sentiment, which probably reinforced the effect. It was no surprise, however, that energy companies would benefit from the sharp rise in energy prices. Crude oil (Brent) increased in price by around 60% compared to the second quarter of 2021, and the sharp rise in gas prices also favoured profit development in the sector. However, higher earnings, i.e. an increase of between 15% and 22%, are also reported or expected for other sectors such as industry, cyclical as well as non-cyclical consumption, basic materials, healthcare and utilities. On the other hand, results in the technology, financials and real estate sectors were partly under pressure.

Despite the recovery in July, risks to the capital markets, especially geopolitical ones, remain. In addition to the war in Ukraine, the Taiwan visit of Nancy Pelosi, Speaker of the US House of Representatives, sharpened the tone between the US and China. In Europe, and especially Germany, the fear of a possible gas shortage in the coming winter remains, even though gas is again being pumped to Europe following maintenance work on the Nord Stream I gas pipeline. However, the supply volume has been reduced again and was recently only 20%.

Inflation continued to rise, especially in view of the higher energy and commodity prices, and increased in the euro area to 8.9% (from 8.6%) compared to the previous month, the highest level since the existence of the single currency. In the US, inflation reached 9.1% (from 8.6%) in June, a level last seen in 1981. As a result, many companies are more pessimistic about their prospects. One indicator of this is the German ifo business climate index, which fell to 88.6 points in July (from 92.2 in June). This means that the mood is as bad as it was in June 2020, when corona-related lockdowns weighed on the economy and society.

Major central banks raised their key interest rates in July to curb inflation. The ECB raised its rates by 50 basis points to 0.5%, although it had actually announced in its "forward guidance" that it would only make an interest rate step of 25 basis points. This gives the ECB the impression that it wants to quickly raise interest rates once or twice more until autumn, before a possible deterioration of the economic situation is unlikely to allow it to fight inflation. The US Federal Reserve also decided to raise its key interest rates again by 75 basis points to a range of 2.25 to 2.50%, which was largely expected by market participants. This puts US policy rates already close to the estimated neutral rate, where the US economy is neither stimulated nor slowed.

Bond yields fell significantly against the backdrop that the economy could deteriorate further in the autumn. The yield on ten-year German Bunds fell 52 basis points to 0.82% for the month. The yield on their US counterparts fell 36 basis points to 2.65%. The price of gold also fell, dropping from US$1,819.25 to US$1,754.57/troz.


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