Game stop turbulence checked: Dax is warming up again

Sunday, February 07, 2021

Game stop turbulence checked
Dax is warming up again

The most recent minor phase of weakness has been overcome and the way is clear for new all-time highs. The price turbulence around Gamestop had no lasting effect on the markets. The risks lurk elsewhere.

According to experts, the stock market jumping to new record highs is only a matter of time. The lockdown is doing less harm to the European economy than initially feared. Economic output in the euro zone shrank by 0.7 percent in the final quarter of 2020 compared to the third quarter. It's not nice, but it's not a catastrophe either. Industrial production data next week should confirm this.

The first quarter is likely to be difficult, but then things will get better quickly. Italy and Austria have already eased or announced easing, and in Germany the debate is in full swing.

"The vaccination programs are gaining momentum around the world, and the economic outlook is also brightening, supported by additional fiscal incentives," says Luca Paolini, chief investment strategist at Pictet. Analyst Konstantin Oldenburger from the online broker CMC Markets is also optimistic about the future. "If you look at the economic data, the world economy seems to be running under high voltage right now."

After settling the excitement over the turmoil in stocks in US video game retailer Gamestop and other stocks, investors returned to fundamentals. Nevertheless, the ongoing coronavirus pandemic and the sluggish mass vaccinations could thwart the optimists' plans, warns market analyst Milan Cutkovic from the Axi broker. A smoldering danger is a Covid 19 mutation that could prove resistant to the vaccines developed so far.

For the time being, stockbrokers are looking forward to the Corona summit on Wednesday. There, the federal and state governments want to advise on the pandemic restrictions. Health Minister Jens Spahn urged relaxation in an interview. Chancellor Angela Merkel, however, urges caution.

Dax is about to jump to a record high

In the old week, speculation about a quick adoption of further corona state aid in the USA, an end to the government crisis in Italy and strong company balance sheets gave the Dax a tailwind. The leading German index rose by a total of five percent and was facing the biggest weekly gain in three months. He's also flirting with his record high of 14,131.52 points from January.

The Dax could get fresh tailwind from the renewed flood of Company balance sheets to get. According to Commerzbank, 46 percent of the Dax companies that have presented their figures so far have exceeded market expectations. In the MDax it was even 61 percent of the companies. "This balance sheet is all the more remarkable given that an above-average number of companies had already raised their expectations for 2020 as a whole in the course of the fourth quarter," it says.

The balance sheet season is also going well in the USA, says Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank. "So far, profits have been 17 percent above expectations, sales three percent. For the first time since the beginning of the coronavirus pandemic, companies have increased their profits again year-on-year."

In Germany put in the new week among other things German Stock Exchange, the food delivery service Delivery Hero and the Commerzbank Business figures. Companies like the car manufacturer open from abroad General Motors (GM), the cosmetics manufacturer L'Oreal and the brewery Heineken their books.

However, only a few relevant economic data are on the schedule. These include numbers for German (Monday) and European (Friday) Industrial production. Also be Inflation data from Germany and the USA (each Wednesday) published.

Gamestop hype evaporates

The turbulence around Gamestop & Co and the associated brief distortions in the overall markets have meanwhile subsided. The triumph of private investors organized through Reddit against the hedge funds, which were forced by concerted action to cover short positions expensively, has proven to be short-term. The Gamestop share has completely collapsed in the meantime. The attempt by the Reddit community to manipulate the silver price upwards has also failed miserably.

What remains are hedge funds, which are likely to have made their bottom line, and some private individuals who, despite "swarm intelligence", have learned something about the balance of power in the financial markets. "It remains to be seen that such … actions trigger considerable volatility at the level of the market as a whole and can cause difficulties for larger market participants. However, the financial system has passed the litmus test," said LBBW. The global glut of money is driving investors to take higher risks.