After the brief jump of over 13,000 points, the Dax is facing another test in the new week. However, the potential for correction on the stock exchanges is limited, because the support from the central banks is too great.
After the breather at the end of the week, the signs on the German stock market point to rising prices again. The hope that the economy will pick up again after the Corona crisis and the persistently low interest rates should support the stock markets in the coming week. Although the new infections with the coronavirus reach record levels worldwide, the omens are favorable, said Daniel Schär, chief analyst at Weberbank: Because the world has now learned to deal with the pandemic, there is progress in the development of a vaccine, "and finally there are hardly any sensible alternatives to investing in shares ".
In the old week, the Dax approached a record high of a few percent before many investors took profits. The leading index had initially risen to 13,313 points, almost ironing out the corona crash – an increase of more than 60 percent since the March low. Even before the weekend, however, the index showed signs of weakness, after three consecutive weeks of profit it finally posted another weak week. The Dax fell on Friday by 2.02 percent to 12,838.06 points – a weekly drop of 0.6 percent.
"Politicians and central banks have averted the recession," said Jeffrey Schulze, investment strategist at asset manager Clearbridge Investments. In the second quarter, the economy in many countries almost collapsed because the fight against the virus brought public and economic life to an almost complete standstill. The data on the gross domestic product for Germany and the USA on Thursday show how strong the minus was. "The figures for the economic downturn in the second quarter will look bad – but the equity markets will probably remain on the up," said Robert Greil, chief strategist at Merck Finck, a private bank.
Because the economy is now starting up again in many parts of the world, and the prospects are improving. In the eurozone, purchasing manager indices for June already signaled growth again. On Monday, the Ifo business climate index will present one of the most important leading indicators for the situation of the German economy. Experts expect the barometer to move further away from its lows in July and, above all, to brighten expectations. This should also have an impact on the labor market, where unemployment is expected to rise less than in the previous month.
Fear of a second corona wave
US policy also speaks against a stock market slump. The US Senate is currently arguing about a new multi-billion dollar restructuring program. The positions are still far apart, but it can be assumed that if the economy weakens again, a common line will be found very quickly. US President Donald Trump in particular has to fear the possibility of a relapse into the recession, since his chances of re-election in the presidential election in November would suffer considerably. He is already far behind challenger Joe Biden in the polls.
The virus infection numbers are likely to remain a risk for the stock market in the coming days. According to the experts from Helaba, the stock markets recently gave the impression that the pandemic was defeated. However, the latest developments show that the danger of a second wave remains real. While the number of infections in the USA has been rising for some time, France and Spain also warned again of increasing cases on Friday.
On top of that, the corona crisis has left the US-Chinese conflict forgotten for months. That is over now. After the Chinese embassy in Houston closed and the Chinese diplomatic counterpart ordered the US consulate to be closed in Chengdu, the market became more alert. Some stockbrokers fear an escalation spiral that could also affect the trade dispute, especially since US President Donald Trump now means the trade agreement with China "much less", as he said.
The most important economic event for the stock market is likely to be the Fed meeting on Wednesday. Central banks worldwide have opened the money gates in the fight against the pandemic. They would have left no doubt that they would not be just as resolute in the event of new setbacks, said Clearbridge expert Schulze. "The fact that the market is increasingly realizing that long-term interest rates will remain extremely low or even negative will continue to support equities," added Merck-Finck strategist Greil.
Reporting season is nearing its peak
The reporting season is picking up speed among companies. With SAP, BASF, Deutsche Bank and VW, some of the most important German companies present their results. From the United States, the numbers include the heavyweights Facebook, Amazon, Apple and the Google parent Alphabet.
Apple had to close some of its stores during the crisis, Facebook suffered from the boycott of advertising by some major customers, the LBBW experts wrote. Nevertheless, big tech tended to benefit from social distancing and home office rather than suffering from global curfews. The expectations for the figures are therefore high – and the markets are facing a crucial week: "After all, these values have become increasingly important for the major US stock indices in recent years."
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