DAX pullback from 6-week high ahead of IFO sentiment data – Daily Market Brief, July 25, 2022

Growth and recession fears set indices towards a weaker start after PMI data on Friday showed business activity contracted in July.

·         FOMC rate decision and earnings season in full swing means a busy week ahead

·         German IFO data is expected to show that economic sentiment continues to fall

·         Ryanair reports a Q1 profit of €170M after a loss in the same period last year

Stocks across Europe and the US managed to book gains last week, even as economic data showed a notable deterioration. The FTSE booked gains of 1.5% across the previous week and the DAX 3%, closing at its highest level in six weeks.

In the US, all three leading indices booked gains. However, weaker than forecast PMI data ensured that stocks closed lower on Friday, which has translated into weakness in Asia at the start of this week and European bourses pointing lower ahead of the bell on Monday.

Concerns over a recession are growing. The composite PMI in both the US and the euro zone unexpectedly fell below 50, indicating a contraction in business activity in July. The data comes as the ECB raised interest rates by a larger than expected 50 basis points, a move which is expected to slow growth further. And as the Federal prepares to hike rates again on Wednesday, most likely by a further 75 basis points.

Recession fears are being played out in the bond market, where yields are falling lower, and in the commodities market, commodity prices have been falling steadily in recent weeks.

Earnings ramp up

In addition to the Federal Reserve, the other main focus this week will be on earnings with UK banks and US big tech due to updating the market. After Snap posted its weakest ever sales growth on Friday, investors are nervous about what to expect from other tech stocks dependent on advertising revenue, a similar business model to Snap.

German IFO business sentiment

Heading into the open today, the FTSE is looking at a 0.6% fall on the open, and the DAX is set to drop 0.8% as sentiment remains very fragile.

The economic calendar is relatively quiet, with just German IFO economic sentiment due hot on the heels of the weak PMI figures and is expected to add to the cloud of gloom hovering over the eurozone’s largest economy. German business confidence has been falling for several months now, with few signs that the bottom is nearing. Expectations are for the IFO business climate index to be 90.5 in July, down from 92.3 in June.

Ryanair

Ryanair has reported a profit in Q1 after broadly avoiding the travel disruptions affecting most of Europe. The discount airline carrier posted a net income of €170 million in the three months to June, a marked improvement from the €273 million loss booked a year earlier. This was also ahead of the €150 million profit forecast. Ryanair still expects to fly 165 million passengers this year as it raises capacity above pre-COVID levels this summer to win market share and capitalize on pent-up demand. However, uncertainty surrounding COVID-19 and fuel prices make it impossible to forecast full year profit. Ryanair share price trades up 14% so far this month but still trades down around 20% so far this year.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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