Pre-Market Shares: Markets hope Porsche can break IPO freeze

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Warnings of a global recession are widespread, inflation is persistent and Russia is escalating the crisis in Europe. The macro picture of the economy is bleak, and the markets are suffering. But amid all the hubbub, luxury carmaker Porsche managed to pull off one of the biggest market debuts in European history on Thursday.

Dealmakers are pinning their hopes on the highly-anticipated public offering: its success could provide a much-needed boost to the increasingly stagnant IPO market. Global IPO volumes are down 44% year-on-year, according to analysis by Paul Go, EY’s global IPO leader.

What’s happening: Porsche, a 91-year-old German company, opened on the Frankfurt Stock Exchange at 84 euros, almost 2% more than the IPO price. Shares rose nearly 5% before missing out on gains and ending at €82.50, in line with its IPO price. This gives the company a market value of more than 75 billion euros, which is about 73 billion dollars.

It is the largest European IPO of the year, and the second largest ever in Germany. The public portion of Porsche’s share sale raised 9.4 billion euros, about 9.1 billion dollars, for Volkswagen. This doubles the funds raised by initial public offerings in Europe so far this year.

European and American companies due to the weakness of the stock market. In the US, there have been just 32 IPOs this year. This is a decrease of 88% since last year. “A proud Fed pivot, higher interest rates, heightened growth fears and lower equity valuations dampened the new issue market in 2022,” Goldman Sachs analysts wrote in a note.

More to come: One big hit could be enough to break the freeze and open the pipeline.

“The companies that are showing profitability will be the ones that will take us out [the current IPO glut]” said Barrett Daniels, Deloitte’s head of US IPOs. There are more than 1,000 companies valued at more than $1 trillion, Daniels said, that are ready to IPO but are waiting for the window to reopen. Companies like Porsche “are our boy scouts. “, he said.

But Porsche is a very unique company, with a fandom and brand recognition that few others carry, especially in Germany. Porsche certainly 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 declined reflecting heightened macro uncertainty,” Goldman analysts wrote. The data suggest that “it is still too early to expect a significant increase in IPOs in the near term.”

Bottom line: A favorable environment for IPOs goes hand in hand with strong economic growth. But central banks around the world are actively cooling growth to combat inflation, and thousands of companies looking to raise capital are on hold. The Porsche 640 horsepower is the exception, not the rule.

The German government announced plans to borrow 200 billion euros ($195 billion) to reduce the price of natural gas for households and businesses.

That’s a higher price tag than the £150 billion ($165 billion) it would cost the UK government to fund its own energy price cap over the next two years, reports colleague Anna Cooban.

“Prices must fall, so the government will do everything it can. To this end, we are establishing a large defense shield,” German Chancellor Olaf Scholz said on Thursday.

Germany, Europe’s largest economy, is facing a heating crisis this winter with rising gas and electricity costs, largely due to falling Russian gas supplies to Europe. Its huge manufacturing industry is also feeling the pain.

The package will be financed by new borrowing this year, as Berlin takes advantage of the suspension of the constitutional limit on new debt of 0.35% of gross domestic product.

The decision to subsidize gas prices, giving a boost to the economy, comes on the same day the country’s inflation rate hit double digits for the first time in decades.

The US job market is not going away, literally.

The number of first-time jobless claims fell sharply last week, underscoring how employers are holding on to workers as the job market remains full of opportunities for job hunters, reports colleague Alicia Wallace.

Initial claims for unemployment insurance were 193,000 in the week ended Sept. 24, down 16,000 from 209,000 the previous week, according to data released Thursday by the Labor Department.

Economists had expected 215,000 applications to be filed each week, according to Refinitiv estimates.

Those numbers sound like good news, to say the least. But investors weren’t too happy: The S&P closed at a new low for the year.

That’s because the Federal Reserve has been fighting inflation for months by raising interest rates to cool it down labor market These numbers could mean more painful rate hikes to come when the central bank comes in October.

The August Personal Consumption Expenditure Price Index, the Federal Reserve’s preferred gauge of inflation, was released at 8:30 am.

University of Michigan consumer sentiment and inflation expectations are released at 10 am.

Next week Next week: The fourth quarter begins and with it comes Q3 earnings season. The S&P 500’s third-quarter earnings are expected to be the lowest since 2020, according to FactSet.