Further setbacks threaten the stock market

Frankfurt Was that it? Many investors ask themselves this question after the nerve-wracking past two weeks. After the corona panic cost the Dax at the end of February 12 percent in value, it went down further in the first week of March.

On a weekly basis, the Dax lost another 2.9 percent. In the meantime attempts to recover up to just under 12,300 points failed. The Dax ended the week at 11,542 points, the lowest close in nearly seven months.

While the stock exchanges on Wall Street have held the bottom line for the past five trading days, they have fluctuated more sharply than in a long time. As a result, investors are probably not able to take a deep breath yet. “Short-term high price fluctuations can still be expected,” says Manfred Bucher, equity strategist at BayernLB.

Michael Bissinger, equity strategist at DZ Bank, also warns: Until the damage caused by the virus can be quantified, new price declines on the equity market threaten. For investors this means: Buckle up on the roller coaster.

But investors have a glimmer of hope, namely the European Central Bank (ECB). The euro central bankers meet on Thursday. ECB chief Christine Lagarde has already issued a statement that the ECB will “closely monitor” the situation and take “appropriate measures” if necessary.

Will the ECB have to take action?

This puts the ECB under a certain constraint. The markets are already expecting the central bank to cut the key rate that is currently decisive for them – the deposit rate for bank overnight deposits – by 0.1 percentage point to minus 0.6 percent.

In addition, according to Cem Keltek, bond strategist at Commerzbank, investors expect the ECB to expand its bond purchase program. Since November, the ECB has been buying bonds, especially government bonds, for € 20 billion each month.

The surprising Fed rate cut on Wednesday was fizzled out on the stock markets. The US stock markets even dropped significantly after the rate cut. The Fed cut the key lending rate to banks by half a percentage point to a range between 1.00 and 1.25 percent.

Well-known US economist Larry Summers, formerly Treasury Secretary and at times a candidate for Fed leadership, criticized the Fed. She risks “scaring people with their rate hike.” He also accused her of wasting her ammunition. It is therefore questionable whether a rate cut by the ECB can help the stock markets because the ECB has less leeway than the Fed with its zero interest rate for bank lending.

The bond markets, on the other hand, benefited from the interest rate cut and the flight of investors to secure investments. Prices rose accordingly and in return, yields fell. The yield on the ten-year US government bond hit a historic low of less than 0.7 percent on Friday. The yield on the ten-year federal bond also just barely hit a new record low of minus 0.745 percent.

Investors focus on the outlook of companies on the stock market. Many corporations have already tuned investors to lower sales and profits due to falling demand and disruption to global supply chains.

Does Adidas lower the outlook?

Continental recently shocked investors with a warning to the entire automotive industry: According to Conti boss Elmar Degenhart, the Chinese car market will collapse by 30 percent in the first quarter. This is particularly dramatic for German car manufacturers, where the Chinese business is between 22 percent (Daimler) and 37 percent (Volkswagen).

The sporting goods manufacturer Adidas generates more than a fifth of its sales in China. The group will present its annual figures on Wednesday. The Chinese authorities closed significant shares of Adidas, Puma and Nike stores in the People’s Republic in early February. Adidas stock has lost 16 percent in the past two weeks.

RWE’s shares held up better with a discount that was only about half as clear. The supplier also presented its balance sheet for the past year on Wednesday. In the current environment, investors consider utilities to be comparatively safe investments on the stock market.

Investors will also examine the upcoming economic data, especially with a view to coronavirus symptoms. The data calendar includes figures on German industrial production on Monday and European industrial production on Thursday.

In the United States, economists believe Wednesday’s consumer prices should go down and should not stand in the way of further Fed rate cuts. The reason for this would be the falling oil price. It is doubtful whether good economic data can pull the markets out of their corona panic. On Friday, the better than expected data from the US labor market for February fizzled on the stock exchange.

More: Even after the recent crash, the Dax is still overvalued. This also applies to the US stock exchanges.


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