Halvers market assessment: Now comes the difficult part of the stock market

Trillion-dollar economic stimulus programs and an unprecedentedly relaxed monetary policy are intended to massively counteract the corona recession. Now it has to be shown that the world economy has actually got the worst and is on a normalization course. Is the high level of optimism on the stock exchanges justified or is there a threat of awakening from the sweet stock dreams? After all, a second wave of infections is warned.

The fear of the second wave

The linchpin of every economic perspective is the question of whether and to what extent there will be renewed lockdowns in a second wave of infections.

After all, only a few new infections have been reported in Europe and Germany so far. And China is cracking down to contain the herds of infection in Beijing. America is less successful. While the situation in the previous virus hotspot in New York has calmed down, infections in southern US states such as Texas and Florida are increasing, so that new infections remain at a high level overall.

Figure 1: Number of new infections daily Corona Virus China, USA, Germany

A second wave of viruses would no longer do the same economic damage as the first. The health systems are now tried and tested. And politicians absolutely want to maintain the process of reopening so that the globally opulent fiscal measures can serve their purpose as an economic backstop. To this end, the spread of the virus will be counteracted by consistent distance and hygiene rules, the wearing of mouth and nose protection and the use of Corona warning apps.

Signs of global economic life are increasing

Against this background, the economic recovery continues. The “Corona Shutdown Index” again gives clear signs of this. Using mobile data from the Google COVID-19 Community Mobility Reports, it delivers movement trends in retail, grocery stores, pharmacies and at the workplace. Depending on the country, the economic consequences of the containment or easing measures can be observed. It is certain that the major economies are still far from pre-crisis levels. But noticeable progress can be seen everywhere.

Figure 2: Corona shutdown index

The general economic recovery is also reflected in a noticeable price recovery for copper – a particularly cyclical industrial metal – at around 20 percent since the end of March.

Figure 3: Purchasing managers index manufacturing worldwide and copper price

A special ray of hope is certainly the increasing economic optimism in Germany as a country dependent on the global economy. According to ZEW, the current situation is still cloudy despite a slight improvement. The financial analysts surveyed expect the third brightening of economic expectations to be the highest since 2006 at 63.4, the highest since 2006. Quarter, however, again with a clearly increasing economic trend.

Figure 4: ZEW economic expectations for the next 6 months and current situation

Fed offers the US government fully comprehensive insurance without an insurance premium

After all, monetary policy remains a massive companion to the economic and equity recovery. In America, Fed chief Powell has already opened the door for further interventions with a deliberately cautious economic assessment. The US central bankers are already examining the instrument of the Yield Curve Control (YCC). This yield curve control not only controls the level of short-term, but also that of long-term rates. For example, the Fed could announce that it plans to anchor 10-year US government bond yields at zero percent. This concrete announcement alone would have a clear impact on the entire yield curve. The rest is done by the bond purchases. This would give central bank money in abundance at even more favorable terms. Planned economic methods would secure the funding of the US state budget. Powell’s testimony before the US Congress that it would be wise for the US government to look for further economic support options actually shows that monetary policy has become a means of fulfilling fiscal policy. A fifth US $ 1 trillion stimulus package to overhaul the aged US infrastructure is already in the works.

Since the Fed wants to raise US inflation above its target of two percent and also establish it there sustainably, it also helps with loan repayment. With a maximum return of zero percent, the dramatic overindebtedness is magically inflated away.

With its direct buy-back program for corporate bonds, which is no longer solely based on index purchases – in addition to outstanding securities with a volume of $ 250 billion, it also buys new issues with a volume of $ 500 billion – the Fed also creates a paradisiacal financing environment for Corporate America.

Market situation – No ingredients for a double dip

And where there is no loan interest, there is no reasonable investment interest. The liquidity boom acts like a safety net for stocks.

Reports of increasing infections in the USA and China are irritating to investors. However, economic optimism prevails on the US stock exchanges, which are still at least at the previous year’s level. Overall, the current economic condition is still weak. Nevertheless, actual US economic data since May have clearly shown positive surprises, based on the economists’ estimates.

Figure 5: Economic Surprise Index USA and US stock market

Decreasing economic disappointments in the eurozone – albeit with less conviction – also flank the European stock recovery.

Figure 6: Eurozone Economic Surprise Index and Eurozone stock market

Bank of America polls fund managers have changed their underweight in euro zone stocks to an overweight since May. If the trend continues, the performance gap from euro to US stocks would be closed.

In general, progress in the search for corona vaccines or medications is increasing. For example, the German biotech company CureVac is starting a clinical study for a vaccine that is comparatively quickly available if successful. In addition, the drug dexamethasone holds out the prospect of a drop in the death rate in severe corona disease courses by a third. As a result, the resilient equity rally is not expected to end abruptly.

But the two opposing forces that work on the stock markets – permissive fiscal and monetary policies vs. bad economic or infection data in the meantime – will initially cause high price fluctuations. But these can be well parried with stock savings plans.

Figure 7: Volatility in the DAX

At the payment service provider Wirecard, at the latest with the fourth postponement of the audited balance sheet figures for 2019, the reputational meltdown has now occurred indefinitely. The auditor EY has serious doubts about the coherence of the annual report, especially with regard to the evidence of liquidity. After all, it is about a quarter of the total assets. Due to the renewed suspicion of falsification of the balance sheet and the misleading publication of information for investors, BaFin and the Munich public prosecutor are also dealing with the company. The investors literally flee from the stock. But there is also the risk of customers withdrawing and terminating loans, which could lead to financial bottlenecks. Further membership in the German stock index is also questionable. Why the company has even scheduled or not canceled an appointment for the presentation of the balance sheet despite unresolved issues also leads to confusion about the management.

Operatively, Wirecard is excellently positioned for innovative payment methods. And Germany is not blessed with companies with future technologies. Unfortunately, however, the company has become invaluable. The stock is a pure speculative object, in which, depending on the news situation, e.g. about loan extensions or not everything is possible.

Sentiment and chart technique DAX – correction potential limited

According to Bank of America Merrill Lynch’s Fund Manager Survey, fewer and fewer fund managers are talking about a bear market rally. At the same time, the fear of a weak economic recovery is diminishing. Hedge funds have even raised their equity quota to its highest since September 2018, according to the survey.

Nevertheless, according to the Macro Risk Index, Citigroup with a value of 0.65 dominates cautious “risk aversion”. Values ​​greater than 0.5 indicate increasing aversion to risk, values ​​less than 0.5 are willing to take risks.

Figure 8: Citigroup Macro Risk Index and world stock market

On the futures markets, hedging purchases are being replaced by speculation on rising prices, as can be seen in the trend-decreasing ratio of put to call options (put / call ratio) on the Chicago Board Options Exchange. It is as bullish there as it was last in 2014. However, this development can also be seen as a counter signal, which favors volatility.

Figure 9: Put / call ratio of US stocks

From a technical point of view, when the correction is made again, the first support is 12,150 points. Stop lines at 12.145 and 11.925 follow. Below this, the index moves up to 11,910, 11,784, 11,746 and 11,600. If the recovery continues, the first resistances are at 12,325, 12,333 and 12,411. Further barriers then follow at 12,470 and 12,852, before the DAX moves up to 12,927 points.

The weekly outlook for KW 26 – upward trend in the ifo business climate index?

In Japan, industrial sentiment and inflation date do not indicate an end to the economic crisis.

In the United States, the decline in durable goods orders in May is less pronounced, and purchasing manager indices for manufacturing and services stabilize at a low level, as does the University of Michigan consumer confidence.

The euro zone has also bottomed out in line with the mood of industry and services.

In Germany, the Ifo Business Climate Index can continue to stabilize for the third time in a row. Despite a further increase, the GfK consumer climate index indicates an overall ailing German domestic economy.

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