Dusseldorf The German stock market is slipping significantly at the end of the week. Of the Dax is down 4.5 percent percent at 9,548 points. Nevertheless, the stock market barometer is heading for the biggest weekly profit in more than eight years. In spite of today’s losses in recent days, thanks to the multi-billion dollar stimulus programs of various governments, it has grown by a total of almost ten percent. The previous monthly balance, on the other hand, looks bleak: With a drop of a good 17 percent to date, the leading German index is at risk of the largest March loss in its history.
On Thursday, the leading German index closed 1.3 percent at 10,001 points because the US stock markets gave a boost. The Frankfurt benchmark ended the third trading day in a row with a plus sign.
Financial stocks in particular flew out of the deposits on Friday, the European sector index fell by five percent. After massive pressure from the supervisors, the European Banking Association (EBF) called on its members to forego profit distributions for 2020 due to the corona crisis.
Above all, drastically declining consumer spending by the Americans is weighing on Wall Street and the German stock market. The consumer confidence barometer in March dropped from 101 to 89.1 points, the University of Michigan said on Friday’s monthly survey. This is the lowest level since October 2016 and also the strongest monthly slump in the indicator since October 2008 – the culmination of the financial crisis. The data is a harbinger of an economic downturn, as private consumption contributes around 70 percent to economic output.
The shocking US job market data from Thursday yesterday was able to absorb the stock markets, but the weak consumer spending was no longer.
The previous Countermovement in the leading German index was rather small anyway. Since the crash on Thursday last week to 8255 points, the Dax has only reached 10,137 points on Wednesday, so far nothing more has been possible.
On the stock exchange, however, the principle applies: the smaller such counter-movements turn out after a crash, the bigger a second crash is likely to be at a later time.
To put it more specifically: If the Dax is not able to clear the 10,000 point mark more clearly, the risk increases that the leading index does still slips below the 8000 point zone.
Asset manager Markus Schön believes in an extremely negative scenario. In his opinion, a new “Black Monday” on the stock markets threatens to start the new trading week. “The Dax could drop below 9,000 points again next week and the Dow Jones could drop below 20,000 points,” he says.
The trigger is likely to be a worsening of the corona crisis. According to his research, the number of people suffering from coronavirus, among other things, will soon rise to over one million.
Together with the corona pandemic, which is becoming very real in the United States and is escalating particularly in the world financial metropolis of New York, there is a risk of massive losses of trust, which could lead to a new sell-off on the stock markets, says Schön.
One could dismiss this view as scaremongering. However, Schön was often right with his forecasts: when the Dax was still at 13,000 points at the end of February, he saw a quick slide below the 12,000 count mark. On March 9, he forecast a Dax level of 9,400 points. At that time, the index was still around 11,000 points.
Look at other asset classes
The euro is on the up against the dollar: At the beginning of the week, it was still at 1,066, currently $ 1.1003. The first “hard” data such as the US labor market report show how hard the US economy is hit by the hard braking.
The situation is likely to worsen because the infection and death rates in the US are only likely to increase. In Europe, on the other hand, the first signs of stabilization are gradually becoming apparent with regard to corona.
“But be careful: Even if the rise in unemployment in many European countries could be cushioned by government measures, the economic data will collapse here too and could hit the euro with full force,” says CommerzbankForeign exchange analyst Antje Praefcke.
There is also a danger that with the increasing release of catastrophic fundamentals worldwide, concern about a global recession and with it the general risk aversion will increase again, which could ultimately benefit the dollar again – albeit to a lesser extent than before due to its lost interest rate advantage.
The decision by the European Central Bank (ECB) to distribute its newly decided bond purchases more flexibly among the euro countries and to suspend existing ceilings apparently continues to have an impact on the bond market.
The yields on German government bonds with a term of ten years, the yield will drop from minus 0.361 percent to meanwhile minus 0.500 percent. Because the unclear economic consequences of the corona virus pandemic are driving more and more investors into the “safe haven” federal bonds. This pushes the return on 30-year stocks back below the zero percent mark to minus 0.026 percent. All federal government debt is therefore a loss-making transaction for investors.
The yield on Italian bonds with the same maturity, on the other hand, suddenly rose to 1.68 percent, before slipping back quickly to 1.23 percent. Meanwhile, this value is 1.316 percent.
Rising yields in Italy and falling returns in other countries signal that the southern European country has been particularly hard hit by the corona pandemic. The Prometeia research institute expects Italian economic output to decline by 6.5 percent in the current year. Public debt is also expected to rise to 150 percent of gross domestic product by the end of the year.
Oil prices are falling again. In the afternoon a barrel (159 liters) of the North Sea type Brent costs $ 24.77, six percent less. The price of a barrel of the American grade WTI loses 4.4 percent and costs only $ 21.60. In addition to the economic consequences of the spread of the corona virus, the price war between the leading Opec nation of Saudi Arabia and Russia continues unabated.
The recovery in the gold price has ended for the time being. The precious metal fell 0.9 percent to $ 1,614 per troy ounce. “I see no other reason to sell gold now than to take a few profits before the weekend,” said Stephen Innes, chief investment strategist at brokerage Axicorp.
Look at the individual values
Per seven Sat 1: The change at the top is well received by investors in the television company Pro Sieben Sat 1. The shares first rose by more than eight percent, but now the increase is only 0.9 percent. After months of quarreling about leadership, the television company Pro Sieben Sat 1 exchanges its increasingly criticized CEO Max Conze. The manager will leave the company with immediate effect.
The change of management is also associated with a U-turn in strategy: The operator of television channels such as Pro Sieben, Sat 1 and Kabel 1 wants to concentrate on the entertainment business in Germany, Austria and Switzerland in the future. The holdings in start-ups are to be sold “in due course”.
Fraport: The Frankfurt airport operator is preparing for a longer phase with less air traffic due to the effects of the corona pandemic. “In 2021 we will probably not reach 100 percent of the previous traffic,” says FraportBoss Stefan Schulte of the “FAZ”. Fraport wants to overcome the current crisis without government support if possible. Fraport has a liquidity cushion of more than one billion euros, which is still being increased. The share loses around four percent.
Carnival: With a price drop of more than 16 percent, Carnival shares are again at the bottom of the London selection index FTSE. According to stockbrokers, investors fear that the “Aida” mother, as a British company, could be left with the planned US billion aid for the cruise industry, which has been hit by the coronavirus crisis.
“When planning wealth, the rule is: never get out completely!”
What the chart technique says
With the increase to 10,137 points last Wednesday, two resistances gain in importance: Firstly, the downward price gap of March 12, which covers the range between 10,138 and 10,391 points; on the other hand the low of December 2018 with 10,279 points, the starting signal for the rally until mid-February 2020.
“This is the decisive hurdle in chart technology, skipping it would put the German standard values on a fast recovery path,” say the technical analysts at Düsseldorfer Bank HSBC. Without a recapture, the coming trading days are likely to remain volatile.
Such downward price gaps arise when the daily low of the previous day is above the daily high of the subsequent trading day. The daily low of March 11 was 10,391 points, the high of the following trading day was 10,138 points. Such gaps are a quick re-evaluation of the market and therefore an important resistance according to chart technology.
On the underside, according to the HSBC, the Dax should return to crisis mode at prices below 9070 points.