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Inflation hit the stock markets

“I think I was wrong about inflation,” US Treasury Secretary Janet Yellen recently reported. Yellen, who served as chairman of the Federal Reserve from 2014 to 2018, also provided a rationale: “There have been major unforeseen shocks to the economy that have driven up energy and food prices and shortages. of supplies that is affecting our … the economy, but now we recognize it “.

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Well, it’s nice that Treasury Secretary and his successor as Fed Chairman Jerome Powell believe they can keep inflation in check by 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 food companies will lower their price increases? Do you think eggs will become cheaper again? These high prices will remain,” said the “Neue Zürcher Zeitung” quoted by a passer-by in the capital. Indeed, it can no longer be said that the inflation problem in America is temporary, as President Joe Biden and his ministers have always said, but it persists.

Inflation appears to be consolidating on this side of the Atlantic as well. In the EU, the inflation rate increased significantly again in May and reached 8.1%. 7.9 per cent were in Germany. This means that the price increase is as massive as it was at the record level of 1973/74. On Thursday, inflation forecasts were also raised by the European Central Bank. It now predicts an annual inflation rate of 6.8% in 2022 before contracting to 3.5% 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 is it spiraling out of control. There are enough reasons for this; the most important are the risk of further mutual price escalation in supply chains and the emergence of a wage-price spiral.

Both Biden and top European politicians mainly blame Putin’s “war in Ukraine” and the problems it has caused in the supply chain for huge price hikes, but it’s not that simple. Now the bill is also being paid for the excessively expansionary monetary policy of recent years. No wonder inflation and economic worries accelerated the recent decline in US equity markets on Friday. The leading Dow Jones Industrial Index lost 2.7% to 31,393 points. On a weekly basis, this means less than 4.6%. The market-wide S&P 500 fell 2.9% to 3,901 points on Friday. The high-tech NASDAQ 100 fell 3.6% to 1,833 points. All three indices recorded their largest weekly loss since January.

Politics bypasses citizens’ concerns

Now it’s here, inflation

“After the US inflation rate dropped in April, speculation about the peak has increased,” writes Commerzbank analyst Christoph Balz. With the renewed increase, this has been done. Rather, the details of the latest data showed that inflationary pressures remain far-reaching. Many market participants expect the Fed to raise interest rates by up to 0.75 percentage points at its July meeting.

Among individual stocks, bank stocks recorded particularly significant losses. Investors fear that central banks may move towards an even tighter monetary policy stance in the face of steadily rising inflation, with higher interest rate hikes than previously assumed. Although banks are seen as the beneficiaries of rising interest rates, excessively tight monetary policy can stifle economic growth and slow demand for credit. Goldman Sachs, one of the Dow’s biggest losers, was down 5.7% and JPMorgan down 4.6%.

Shares of DocuSign fell nearly a quarter, making it the clear underdog of 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 of cosmetics maker Revlon plunged 53%, posting the largest one-day percentage loss in its history. Traders have referred to speculation about an impending bankruptcy filing.

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Inflation is dynamite for politics

Prices on the German stock market had already fallen significantly earlier. Experts warned of declining corporate profits, further deterioration in consumer sentiment and, ultimately, the economy sliding into recession. Given these scenarios, the Dax fell below the 14,000 point mark and closed down 3.1% at 13,762 points. It was his fourth consecutive day of losses, so the weekly balance is also very weak at minus 4.8%. The MDAX of midsize stocks lost three percent to 28,767 points.

Concerns for the economy due to 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% at the end of the Dax. Shares of Commerzbank fell 5.6 percent among the weakest values ​​in the MDax. Against the backdrop of the turnaround in eurozone interest rates, property values ​​were also weak. Vonovia lost 3.3% and TAG Immobilien lost 6.3% in the MDax. Instone even slipped 13% including dividend deduction in the SDAX. Knorr-Bremse took off relatively lightly with a drop of 0.8 percent. A new purchase recommendation from Citigroup supported the brake system manufacturer’s shares.

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