The signs on the German stock market are still on a storm. Bargain hunters could ensure recovery. But investors are still preparing for a troubled week. After the Fed cut its key interest rate unexpectedly, market participants speculate that the ECB will follow suit.
After the surprising US interest rate cut, stock marketers are hoping for similar help from the European Central Bank (ECB) for the domestic economy. “Since the deposit rate is already at a record low of minus 0.5, the leeway is significantly less than that of the Fed,” says fund manager Wolfgang Bauer from asset manager M&G. However, the currency keepers could easily increase the volume of their securities purchases from the current 20 billion per month to 80 billion euros and thereby collect corporate bonds.
A reduction in interest rates for commercial bank deposits with the ECB to minus 0.6 from minus 0.5 percent is considered to be a certainty for investors. The central bank could announce such a step before the official deliberations on Thursday, predicts Neil Wilson, chief analyst of the online broker Markets.com. At a conference call a few days ago, the currency keepers had initially opted for a policy of steady hand.
Rapid interest rate cuts would also have a downside
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The Fed has also not yet reached the end of the flagpole, says analyst Laura Pozzini from the asset manager Eurizon. She believes that further rate cuts and additional cash injections are likely. Investors see the likelihood of the key rate being cut again by half a percentage point in regular Fed consultations in mid-March at more than 80 percent.
Rapid interest rate cuts and multi-billion government aid programs also have a downside, warns analyst David Madden from online broker CMC Markets. “Investors wonder how bad the situation really is. At a certain point, interventions stir up nervousness.”
Against this backdrop, the Dax has slipped sharply in recent days. On Friday, the leading German index closed 3.4 percent lower at 11,541.87 points. The stock exchange barometer thus posted the third consecutive weekly loss. It is the longest series in almost six months. Wall Street’s indices also fell on Wall Street at the end of the week, although the US economy created significantly more jobs than expected in February. The Dow Jones index of standard values closed the weekend with a minus of around one percent at 25,864 points. The technology-heavy Nasdaq dropped 1.9 percent to 8,575 points, the broad S&P 500 lost 1.7 percent to 2,972 points.
In the new week, traders are likely to tap the forthcoming economic data on coronavirus symptoms. The schedule includes, among other things, figures for German (Monday) and European (Thursday) industrial production. “It remains to be seen whether the downward slide in industry has ended,” says Commerzbank analyst Christoph Weil. “In the US, consumer prices for February will show that inflation is not in the way of a further rate cut by the Fed.”
Laggards prefer business figures
Investors are also squinting to the UK, where new finance minister Rishi Sunak plans to present his budget on Wednesday. “This would have been expansionary anyway,” says analyst Andreas Billmeier from Western Asset Management. “The economic impact of the virus now provides a nice cover for spending even more.” In Germany, the tax cuts planned for 2021 could be brought forward. “Since these relieve primarily those on low to middle incomes, they should have a good impact.” In addition, some stragglers will present business figures in the new week.
DZ bank economist Bielmeier expects companies to continue revising their forecasts. “It will probably be a few weeks before they disclose the negative effects resulting from the Corona virus. A large part of the consequences should not be known and announced until the beginning of April after the end of the first quarter.” Nevertheless, numerous companies are likely to comment on the effects of the virus in the course of the new week in the course of submitting their annual figures. Deutsche Post reports on the past year from the Dax on Tuesday. A few days ago, the Bonn company had already cashed in on its profit targets for 2020 due to the coronavirus epidemic and special charges for the Streetscooter electric van.
On Wednesday, the figures of the sporting goods manufacturer Adidas come into focus. Herzogenaurach also depend heavily on China business. The utility RWE, whose shares have so far performed relatively well in the virus crisis as a supposedly defensive value, is to act with the presentation of its annual figures on Thursday.
Investors should be aware of the latest traffic figures from Fraport on Thursday before the airport operator presents its annual figures the following day. Concerns about the economic consequences of the virus crisis have already weighed heavily on the paper, as has the entire travel and leisure sector. Fraport has already lost almost a third of its market capitalization in the past two weeks.
Before corporate figures are released, investors can get an idea of the economy in China, where the corona virus first broke out, this Saturday. According to the dDZ Bank, statistics on Chinese exports and imports are likely to show the strongest decline in more than ten years compared to the previous year. Data on industrial production in Germany are on the agenda on Monday
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