DAX outlook: mood barometer cloudy outlook

Frankfurt In the past weeks there have been repeated attempts to recover the course, on some days one could believe that the corona pandemic has already been overcome. But on Friday, disillusionment returned – the collapsed ifo business climate index made the whole dilemma clear.

The course of the mood barometer looks like a “Highway to Hell”, was the analysis of the VP Bank. The index is now significantly below the values ​​of the crisis year 2009. The simple message for the future was: “Massive income losses are imminent. We will all get poorer. This applies not only to Germany, but to all economies. ”Sometimes it is better to hear the unvarnished truth.

Other analysts and experts are also skeptical about the weekly outlook. Cautious savings by consumers and companies create a completely different economic and inflation environment than one knows from the post-war period, the analysts at MFS Investment Management believe.

They expect the earnings recovery to be weaker than the market and point to the possible dilution of earnings through capital increases. They particularly highlight 2008 as a comparison.

“When the extreme risk of the international financial crisis subsided, companies were no longer concerned with distributions, but with recapitalization. To this end, new shares were issued – at the expense of existing shareholders, whose capital was heavily diluted, ”said the investment professionals. The new wave of recapitalization has probably just started. In the past few weeks, leisure companies and service providers in the United States and Europe have already offered new shares.

Warning to bargain hunters

The BLI – Banque de Luxembourg Investments is also cautious. “The financial markets are currently giving the impression that they are underestimating the extent of the economic damage and are counting on a rapid recovery as soon as the containment measures are reversed,” is the BLI’s assessment.

Many investors are conditioned to view any decline as an opportunity to buy. However, the analysts recall that while the fall in share prices in February / March was dramatic, the valuations were also very high. As a result, the markets today are anything but cheap, especially after the recent price recovery.

Quality companies with a very solid balance sheet, one or more sustainable competitive advantages and the ability to self-finance should be preferred. The main factor that will continue to speak for stocks remains the low interest rate level and thus the lack of alternatives. At the same time, gold will become an “indispensable part of a balanced portfolio because of the inflation risks.”

After the significant recovery since mid-March, the European stock market has recently lost some momentum, the Weberbank experts believe. In addition, the balance sheet season that is already underway shows significant impacts on corporate balance sheets due to the global “lockdowns”.

Correspondingly, the analysts have also significantly lowered their profit expectations for industrial companies, but also for the banking and energy sectors. Due to the economic slump, banks faced increased write-downs on their credit books and the massive drop in yields clouded interest income. Most recently, they also negatively impacted the rating agency Standard & Poor’s (S&P).

The Deutsche Bank and the Commerzbank were therefore particularly under pressure on Friday “We continue to distance ourselves from these sectors and prefer creditworthy pharmaceuticals or companies from the non-cyclical consumption. In addition, titles from the technology sector are promising in our eyes, ”said the Weberbank experts.

Central banks meet worldwide

If the economic situation continues to be poor, the states and central banks will have to take further support measures. Robert Greil, chief strategist at Merck Finck Privatbankiers, sees an opportunity for this next week because the European Central Bank, the US Federal Reserve and the Bank of Japan are meeting.

“As a result of the unprecedented economic downturn caused by the Covid 19 consequences, all central banks will reaffirm their willingness to support,” says Greil. The economic downturn left neither governments nor central banks a choice but to take further measures to support and recover the economy.

The gross domestic product for the first quarter of 2020 will be published in the euro area on Thursday, and new growth figures will come in the US on Wednesday. Further important economic data in Germany are the preliminary inflation figures and the labor market report for April.

According to DZ Bank, the next quarter should bring an improvement in the economy, but there does not have to be a “V” or “I” recovery. This is not ignored on the stock market, many stocks are up to 80 percent down.

A large number of “mega-caps” hold up against this, mainly in the USA. Amazon, Google, Microsoft, Netflix and Facebook, but also Adobe or Comcast, be stable on the way. Things are also going well for the great values ​​of the “old economy”, including Pepsico, Johnson & Johnson, Procter & Gamble, Home depot and Pfizer. The German Leading index Dax the strategists from DZ Bank see 11,200 points by the end of the year, and the S & P-500 for US equities at 2,800. This would at least stabilize in the medium term.

More: Yield in Corona times: With which investments you can still make money


Equities are becoming even more attractive than government bonds

There is often only a fine line between fear and hope. Historically, the price declines at the beginning of the Corona outbreak in Europe were not the strongest, but they were by far the fastest. Fell within eight trading days the Dax by almost 33 percent. After a short breather, the prices climbed by 23 percent in just five trading days. The US stock exchanges followed this pattern.

At this stage, as an investor, you could do more wrong than right with actionism. Measured against the MSCI World Index, shares have suffered a loss of around 20 percent since the beginning of the year. Significantly less than during the financial crisis between June 2007 and March 2009 and during the bursting of the technology bubble in the period from June 2001 to May 2003. Both events resulted in share price losses of around 50 percent, calculated in euros, taking the dividends into account.

In view of the fact that the economy has largely come to a standstill over a month or two, combined with considerable income losses due to short-time work and unemployment, the price losses that shareholders have had to pay as a tribute to the corona crisis appear rather small.

This stems from the fact that many countries with unprecedented budget deficits absorb the costs and loss of income. This can also be justified, since this time it is not a self-inflicted crisis in the economy or the capital markets, but rather force majeure. Consequently, the state steps in by communitating the damage in the form of debt in order to minimize the negative consequences for individuals and for companies.

However, the rescue measures are not financed through the free capital market, but through the major central banks such as the Federal Reserve, the European Central Bank or the Bank of Japan. These buy up the debt – in the case of the United States, even unlimited – and use it to print money. This compensates for liquidity bottlenecks and enables an exploding national debt at falling interest rates. There is probably no alternative to this approach by the states. However, it should be clear that we will face considerable costs in the future.

Money and public debt are two sides of the same coin

The following scenario is conceivable: The level of public debt increases massively in relation to the gross domestic product. Without lasting support from the central banks, interest rates would rise to an extent that would jeopardize the debt sustainability of the states. To prevent this, the central banks keep interest rates close to zero by buying government bonds.

This would not be a problem if inflation remained at the currently low level. Should this accelerate, however, the central banks would have their hands tied. After all, an increase in interest rates would not only drive the economy into a severe recession, but would also call the states’ debt sustainability into question.

A haircut would pose a risk to monetary stability in this scenario, since money is largely covered by the government debt bought by the central banks. In this scenario, money and public debt are two sides of the same coin. For investors, this means that government bonds, especially those with longer maturities, are not a suitable means of investing assets.

However, shorter-running government bonds from the USA or Germany, for example, are not meant to deny their quality as a liquidity reserve. In the future, investors should measure the stability of money as a reflection of public debt above all by its equivalent in gold, since gold is an object of value that is independent of debt and largely stable in terms of the amount available, which at least in the past was also important by central banks Part of the cash coverage was seen.

Alternative route from Japan and Switzerland

It is interesting in the current environment that some central banks – above all the Swiss National Bank and the Bank of Japan – are taking an alternative way of financing government debt, which at least reduces the risks to monetary stability: In addition to bonds, they mainly buy shares, i.e. shares to companies.

Companies are – even if their debt has increased more in recent years – productive assets. As a source of wealth for every state, they generate income and wealth. Even if they make losses in the current crisis, they are the substance for a future upswing. The relative strength of the Swiss franc and the yen seems to confirm the strategy of the two central banks.

Investors should use the share price declines in the corona crisis as an opportunity and do the same to the central banks in Japan and Switzerland. While companies create added value, government bonds are assets in which you are not only a creditor and a debtor at the same time, but are also not even rewarded with interest.

More: These companies are the big winners and losers of the corona crisis.

Klaus Kaldemorgen, born in 1953, is one of the best-known stock exchange strategists in Germany. He has worked as a fund manager for DWS for over 35 years, where one of the investment funds even bears his name.


ECB & Co simplify access to the world’s leading currency, the dollar


The European Central Bank announces, together with the world’s largest central banks, the coordinated provision of dollar liquidity.

(Photo: Bloomberg)

Frankfurt The European Central Bank (ECB) and other large central banks want to secure the supply of money houses with cheap dollar loans in the virus crisis through a new coordinated action.

The ECB, the US Federal Reserve, the Canadian Central Bank, the Bank of England, Japan’s central bank, and the Swiss National Bank have now agreed to offer the world’s leading currency with a seven-day term instead of just weekly. This applies from Monday and should be the case by at least the end of April, the ECB announced on Friday. The already agreed weekly transactions with a term of 84 days are also to be continued.

With this step, the central banks want to ensure that banks and companies can access the US currency at favorable conditions. In doing so, they want to help alleviate tensions on the global financing markets. Negative consequences for the credit supply of companies and households are to be cushioned. The dollar had recently risen significantly in the wake of the increasingly severe effects of the virus crisis.

More: What a parquet closure means for investors.


Corona crisis: The panic leaves its mark on all markets

Stock exchanges around the world are falling again. Aid from central banks and politicians is waning. The bear market rules worldwide. .

Central banks ensure the provision of cheap dollar loans

European Central Bank

The ECB wants to secure the supply of companies and banks with dollars with five other central banks.

(Photo: dpa)

Frankfurt In view of the global corona crisis, the European Central Bank (ECB) and other large central banks want to ensure the supply of cheap dollar loans in a coordinated action. The ECB, the US Federal Reserve, the Canadian Federal Reserve, the Bank of England, Japan’s central bank, and the Swiss National Bank want to use existing US dollar exchange agreements, as the ECB announced late on Sunday evening.

The six central banks agreed to offer the world’s leading currency with a term of 84 days in their respective areas of responsibility in addition to the credit transactions already offered with a one-week term. In addition, the prices of the existing dollar currency exchange agreements are to be reduced by 25 basis points.

“The new pricing and term offers will remain in effect as long as necessary to support the smooth functioning of the US dollar financial markets,” said the ECB. The changes are expected to take effect with the next scheduled stores in the week starting March 16. With this step, the six central banks want to achieve that banks and companies can get dollars on favorable terms. Banks need dollars for many important financial transactions, not least with companies.

The rate of the US currency had risen sharply in the course of the virus crisis in recent weeks. According to the ECB, the agreement is intended to help alleviate tensions in the global financing markets. Negative consequences for the credit supply of households and companies in Germany and abroad should be mitigated.

Bundesbank President Jens Weidmann sees the coordinated approach of large central banks to provide financial institutions with cheap dollars. “Reliable access to liquidity in US dollars is now particularly important for many banks and companies, including in the euro area,” Weidmann said late Sunday evening. The measure makes an important contribution to this. “The major central banks in the world assume their responsibility and act in close coordination.”

More: The corona virus becomes a stress test for Europe’s solidarity.


Yield drops below one percent

Frankfurt The spread of the corona virus outside of China has triggered an unprecedented rally in US government bonds. After the Fed cut rates, yields on ten-year US interest rate bonds fell below the one percent mark for the first time in US history on Tuesday. In mid-February the yield was still around 1.6 percent. This makes it increasingly probable what was long thought unthinkable: zero interest rates in the dollar area.

Felix Herrmann, bond market strategist at US asset manager Blackrock, said before the rate cut: “The news flow will remain negative for months. Therefore, I do not consider it impossible that we will soon reach the zero percent limit for US government bonds. ”

In his view, there are two factors that are pushing US interest rates lower and lower. “On the one hand, expectations for interest rate cuts have increased extremely.” The market is now expecting four interest rate hikes by the US Federal Reserve by the end of the year.

That would mean that the key interest rates in the USA – which were between one and 1.25 percent after the interest rate decision – continued to fall. The expectation of falling key interest rates leads to rising prices for government bonds and in turn depresses yields.

“On the other hand, US government bonds are one of the few remaining options in the current environment to protect yourself against market uncertainty,” says Herrmann. The US stock markets have just had the worst trading week since the financial crisis. The sell-off on the stock markets also continued on Monday, after the interest rate decision, things went downhill on Wall Street on Tuesday.

According to Herrmann, a comparison with federal bonds shows that US interest rate papers are currently the preferred choice for investors. German government bonds are also considered to be crisis-proof; in times of falling share prices, the prices of German government bonds rise and the yield decreases.

Federal bonds are only suitable as a hedge to a limited extent

However, the ten-year federal bond cannot currently benefit from the uncertainty on the markets to the same extent as the dollar equivalent. While U.S. government bond yields have been hitting new all-time lows for days, the ten-year federal bond is still a good way off its September 2019 all-time low.

Herrmann says: “Many investors are skeptical that Bund yields can fall much lower. And if interest rates do not go down any further, prices will not go up. ”Federal bonds are therefore only suitable to a limited extent as protection against falls in the stock market. “There is still some room for maneuver in US yields.”

In addition, no security is as easy to trade as US government bonds. The high level of liquidity contributes to the fact that US interest-bearing securities are in demand worldwide as safe havens. “That’s why we see this massive rush on US government bonds,” said Herrmann.

Birgit Hensler, a bond expert at DZ Bank, doubts, however, that a further easing of monetary policy can contain the economic effects of the virus. “Ultimately, key interest rate cuts or concerted action by the central banks are unlikely to have a positive impact on the real economic environment,” she wrote in an analysis prior to the Fed rate cut.

Supply chains remain disrupted, even if companies’ financing conditions improve again. Even drastic measures such as helicopter money are not expected to have a stabilizing effect on the economy as long as people stay at home in Hong Kong, for example.

Fed cuts key interest rate: “That should only be the beginning”

The DZ-Bank analyst warned that the Fed would start shedding powder with early rate cuts before a US recession actually occurs. In the euro zone there is also the risk that the If the ECB overcomes its already extremely loose monetary policy, it should lower deposit rates below the current level of minus 0.5 percent and buy even more bonds. “A further reduction in key interest rates could be counterproductive, since the negative effects on financial market stability are already becoming apparent,” said Hensler.

Rather, governments should act now and increase their government spending. They would have to mitigate the impact of the crisis with short-term spending programs, as many governments did in the 2008 financial crisis. This includes DZ Bank analyst Hensler, such as short-time work and financial aid for affected companies.

More: What happens after the Fed cut rates – Questions and Answers


Japan’s central bank calms the markets in the epidemic

Tokyo Japan’s central bank chief Haruhiko Kuroda promised to stabilize the financial markets in the corona virus crisis on Monday before the start of the stock market. In this way, in the global fear of a pandemic, he helped stop the fall in stock prices in Asia at least for the day.

Above all, the gesture counted. In the statement, which was not even subscribed by name, Kuroda only promised that the Bank of Japan would closely monitor future developments and endeavor to “provide sufficient liquidity and stabilize the stability of the financial markets through appropriate market operations and purchases.”

An hour after the stock market launch, the central bank reinforced its statement with the news that it had bought Japanese government bonds worth 500 billion yen (around four billion euros) from the market. It was the first time since 2016 that the Bank of Japan used this tool.

The press release from the Japanese central bank hit the market at a time when investors are betting more and more that central banks could jointly slow the volatility of the financial markets. In a similar statement last week, the US Federal Reserve had already signaled its willingness to lower interest rates to support the Federal Reserve.

South Korea’s money keepers waived an interest rate hike last week because they initially believe that direct state aid to affected industries is more effective. The South Korean government plans to allocate 15 billion euros to combat the consequences. But analysts estimate the chances that the Bank of Korea will cut interest rates by 0.25 percentage points to the new Korean record low of one percent in April.

In South Korea, consumption threatens to drop at least in the current quarter because many people stay at home and hardly go out. In Japan, too, the economic side effects of attempting to slow the spread of the epidemic are likely to increase.

Almost all of the country’s prefectures followed Monday’s request from Japan’s Prime Minister Shinzo Abe to shut down the country’s schools. Large and small events are canceled in order not to offer the viruses a forum. And many Japanese refrain from drowning after work with colleagues and friends.

The Japanese government has already announced an aid program of 2.3 billion euros. However, it is not yet clear how much it will help companies to recover from the consequences of an increase in VAT in October 2019 despite the epidemic.

The economy and corporate profits already shrank in the past quarter after an increase in VAT. Investments by companies in the last quarter of 2019 were 3.5 percent lower than in the previous year, the Ministry of Finance said on Monday. Now the fear of the epidemic and the government’s preventive strategy could delay the recovery.

Masamichi Adachi, economist of the UBS Japan is already expecting production to “probably drop sharply” in March. How long consumption would be slowed down depends on the course of the epidemic. “The next two weeks are crucial,” he says. “If the situation worsens, the consequences will be significant.” He can therefore imagine that the Bank of Japan would participate in a concerted action by the central banks.

For shareholders, this raises the question of whether they should buy into the market now. For Jesper Koll, Japan advisor to the investment firm WisdomTree, the question will depend on the wave of infections in the next two weeks. He chooses the seasonal flu wave as an indicator. If it remains below the usual levels due to the measures taken against the coronavirus epidemic, it would be a signal for him to buy into the market in the hope of rising prices. In the event that the situation worsens significantly, he says: “At least in Tokyo we will know when to panic.”

More: This is how states fight the corona crash.