By agreeing with Opec-plus, the global oil industry, economies, and other oil-dependent industries could avoid a very deep crisis, said Daniel Yergin of information service provider IHS Markit. “It prevents stockpiling, which takes pressure off prices when normalcy returns – whenever that will be.”
The wide-ranging restrictions on public life in many countries are having an impact on the economy, and the oil price has dropped 50-60 percent this year. “We do not expect a sustained recovery in the oil price until tense demand is eased again in the third quarter,” said Harry Tchilinguirian of BNP Paribas. These are not good signs for the German stock index (Dax), which will start trading again on Tuesday.
Last week’s market developments seemed to be fueled by the hope that the worst of the corona crisis would soon be behind us. Won on weekly view the Dax almost eleven percent, which is the most since November 2008 – on Thursday alone it was 2.2 percent. However, optimism cannot be determined from the economic indicators.
The latest bad news in short: The mood of the US consumer continues to collapse in view of the virus. The consumer confidence barometer in April fell to 71 points from 89.1 points in March, the University of Michigan said Thursday. This is the lowest level since December 2011. At the same time, the level of initial jobless claims in the US remains awesome, at 6.6 million a week through April 4.
Federal Reserve steers against the crisis
Federal Reserve chief Jerome Powell even warns that the US economy will sink into mass unemployment. For Thomas Gitzel, chief economist of the VP Banken Group, it is clear: “The decline in social product in the second quarter will break negative records.” Economists understand social product as the goods and services produced in an economy.
However, like all other central banks around the world, the US Federal Reserve is doing everything it can to at least mitigate the consequences of the slump. With additional emergency aid of over $ 2.3 trillion, the Fed wants to support the small and medium-sized companies in the United States that have been hit hard by the crisis.
The states are also generous in Europe. With aid programs worth more than 1.5 trillion euros, they are fighting the effects of the corona crisis on the economy. In order to finance the debts raised, “states will try to keep interest rates extremely low for years to come,” says Daniel Kerbach, chief investor at Merck Finck.
So far, the stock markets have shown behavior typical of bear markets. A deep fall was followed by a clear countermovement. “But as we know from historical crises, the phase of initially disoriented fluctuations in the capital markets can drag on over a long period of time,” says Daniel Schär from Weberbank. In the financial crisis, violent price drops and strong countermovements had alternated for half a year in close succession.
The market low was only reached after five months. Therefore, the market expert is only assuming an intermediate step in the current recovery of the stock markets. In the past, the phases were twelve to 60 months. It took so long to overcome such a serious crisis.
Profits could plunge 50 percent
The effects can also be seen in the yields. “This year, corporate earnings in the German Dax share index could plunge 50 percent and more, more than in previous recessions, when earnings fell by an average of 35 percent,” feared Christian Kahler, chief strategist at DZ Bank. After previous recessions, the price peak in the Dax was only reached again after four years.
Corporate earnings would have recovered faster. In DZ Bank’s view, this means that the companies in the Dax would earn as much in 2022/23 as they did in the record year of 2018. “The index itself would not reach its old high of 13,800 points until 2024,” judges Bald.
The number of corporations that cut, cut or postpone dividends due to the crisis is increasing every day. “Especially in the Dax, this will leave its mark, since in addition to subscription rights, dividend payments are also included in the price,” says Ulrich Stephan, chief investment strategist for private and corporate customers at German bank. According to him, exchange-traded futures contracts on the dividends of the Euro Stoxx 50 index indicate that the market does not expect a rapid recovery in payments, even for the largest European companies.
Derivatives on dividends, which will not be paid until 2022, have also fallen by 47 percent at the top. In the current year, a 25 to 30 percent drop in distributions in the Dax is expected.
Look into the next week
For Robert Greil, chief strategist at Merck Finck, what will probably be the most noticeable economic news in the coming week will be the number of new US jobless claims on Thursday reported for the week ending April 11. In America, retail sales and industrial production are also due in March next Wednesday. The Fed’s “Beige Book” also gives an impression of the state of the US economy.
There is little important economic data in Europe. This includes the result of industrial production for the euro area in February on Thursday. However, the corona pandemic is not expected to have a significant impact until March.
Things are getting more exciting in China. On Friday, the gross domestic product is due in the first quarter, which has been badly affected by the corona virus. In addition, industry figures for March will be published, which will provide information on the pace of normalization in the Middle Kingdom.
Despite all the existing uncertainty, Christian Kahler from DZ Bank judges: “Anyone who buys shares during the coming quarters should achieve good long-term investment results.”
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