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Warnings of global recession are widespread, inflation is persistent and Russia is escalating the crisis in Europe. The macro picture for the economy is bleak, and markets are suffering. But in the midst of all of this turmoil, luxury automaker Porsche managed to make one of the biggest market debuts in European history on Thursday.
Dealmakers have hinged their hopes on the highly-anticipated public offering: Its success could lend a much-needed boost to the increasingly stagnant IPO market. Global IPO volumes have fallen 44% year-over-year, according to an analysis by Paul Go, global IPO leader at EY.
What’s happening: Porsche, the 91-year-old German company, opened on the Frankfurt Stock Exchange at 84 euros, up nearly 2% over its IPO price. The stock rose nearly 5% before losing gains and ending flat at €82.50, in line with its IPO price. That gives the company a market value of more than €75 billion, or about $73 billion.
This is the year’s largest European IPO, and the second-largest ever in Germany. The public portion of Porsche’s stock sale raised €9.4 billion euros, about $9.1 billion, for Volkswagen. That doubles the entirety of funds raised by initial offerings in Europe so far this year.
Companies in Europe and the United States have been holding off on going public this year because of stock market weakness. In the US, there have been just 32 IPOs this year. That’s an 88% plunge since last year at this point in time. “A hawkish pivot from the Fed, higher interest rates, increased growth fears, and lower equity valuations collectively cast a pall over the new issue market in 2022,” wrote Goldman Sachs analysts in a note.
More to come: A big success case could be enough to break the frost and open up the pipeline.
“Companies that are showing profitability are going to be the ones that lead us out of [the current IPO glut],” said Barrett Daniels, US IPO co-leader at Deloitte. There are more than 1,000 companies worth over $1 billion, said Daniels, who are prepared to IPO but are just waiting for the window to open again. Companies like Porsche “are our boy scouts,” he said.
But Porsche is a very exceptional company with a fandom and brand recognition that few others carry, especially in Germany. Porsche definitely boosts IPO sentiment, but ultimately it’s not a big “door opener for other companies,” said Thomas Altmann, head of portfolio management at QC Partners in Frankfurt. The IPO market will return when markets rebound and the economic climate feels more stable.
“CEO confidence and consumer confidence have plunged reflecting heightened macro uncertainty,” wrote Goldman analysts. Data suggests that “it is still too early to expect a meaningful uptick in IPOs in the near term.”
The bottom line: An-IPO friendly environment goes hand-in-hand with strong economic growth. But central banks around the world are actively cooling growth to fight inflation, and thousands of companies looking to raise capital are sitting on their hands. Porsche is a 640 horse-powered exception, not the rule.
The German government announced plans to borrow €200 billion ($195 billion) to cap natural gas prices for households and businesses.
That’s an even bigger price tag than the £150 billion ($165 billion) it could cost the UK government to finance its own energy price cap over the next two years, reports my colleague Anna Cooban.
“Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” said German Chancellor Olaf Scholz on Thursday.
Germany, the largest economy in Europe, is facing a heating crisis this winter with surging gas and electricity costs caused largely by a collapse in Russian gas supplies to Europe. Its huge manufacturing industry is also feeling acute pain.
The package will be financed with new borrowing this year, as Berlin makes use of the suspension of a constitutionally enshrined limit on new debt of 0.35% of gross domestic product.
The decision to subsidize gas prices, adding a boost to the economy, comes on the same day that the country’s inflation rates hit double digits for the first time in decades.
The US labor market just won’t quit — quite literally.
The number of first-time claims for unemployment benefits dropped considerably last week, underscoring how employers are holding on tightly to workers as the labor market remains full of opportunities for job hunters, reports my colleague Alicia Wallace.
Initial claims for unemployment insurance were 193,000 for the week ended September 24, down 16,000 from a downwardly revised total of 209,000 claims from the prior week, according to Labor Department data released Thursday.
Economists had forecast 215,000 weekly applications would be filed, according to estimates on Refinitiv.
Those numbers sound like good news, at least at face value. But investors weren’t very happy: The S&P closed at a new low for the year.
That’s because the Federal Reserve has been working for months to fight inflation by raising interest rates to cool the job market. These numbers could mean more painful rate hikes are coming when the central bank next meets in October.
The August Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge is released at 8:30 a.m. ET
University of Michigan consumer sentiment and inflation expectations are released at 10 a.m. ET.
Coming next week: The fourth quarter begins and with it comes the Q3 earnings season. The S&P 500’s third-quarter earnings are expected to be their lowest since 2020, according to FactSet.
