Markets ignore inflation

Let’s begin with the US September inflation report. The inflation reduced 0.1%, while a 0.2% reduction was expected. However in the month/month ration, the inflation increased 0.4%, while a 0.2% growth was expected. To sum it up, the actual data turned out to be worse than the forecasts.

Everyone knows that an unexpectedly strong inflation growth is an obvious sign that FED would keep on raising the key rates. Consequently, a very probable reaction to that is stock market sales, dollar’s sustainability and overall price decline in commodity markets.

In reality we have the opposite. After short sales, the indices are back in the green.

Last session leaders and outsiders:

DAX:

Top: Deutsche Bank AG +7.34%, Siemens Energy AG +4.6%, MTU Aero Engines AG +4.52%

Flop: Symrise AG -3.09%, Vonovia SE -1.22%, Beiersdorf Aktiengesellschaft -1.17%

EURO STOXX 50:

Top: PADDY POWER PLC EO-,09 +6.98%, Infineon Technologies AG +3.61%, BASF SE +3.15%

Flop: PROSUS NV EO -,05 -6.43%, KONE Corp. (New) Cl.B -4.98%, Hermes International S.A. -3.08%

Dow Jones (us 30):

Top: Chevron Corp. +3.83%, Intel Corp. +3.78, Walgreens Boots Alliance Inc. +3.29%

Flop: Caterpillar Inc. -2.7%, Wal-Mart Stores -2.05%, UnitedHealth Group Inc. -1.9%

This optimism is based upon a relative sustainability of world’s largest economies. In other words, investors have already taken the future monetary policy restrictions introduced by FED into account. As for the EU stock market, the optimism is based upon the info regarding the ECB slowing down the key rates increase. Consequently there is a risk of a short term stock market recovery. Currently we can only talk short term as everything depends in the changes in yields profitability.

Bonds market:

Let’s start with the US 10-years yields. After a short growth in profitability above 4%, the demand calmed down. Nevertheless, there was no considerable decline afterwards. The analogue securities from France and Germany and even the UK are lowering down more actively. This is a good sign for European stocks market.

Any additional confirmation of the ECB slowing down the increase of the key rate will lead to a decline in the yields profitability and growth of the key European indices.

Oil market

American and European indices recovery supported the oil quotes. However, buyers’ activity is still moderate. They did not manage to elevate WTI above $90, Brent above $95. This symbolizes a risk of a descending movement.

In case the bear scenario takes place, the electric sector securities will have a chance to move.