Markets

Now the bears are still going

The US Federal Reserve’s rate decision brought no surprises the day before yesterday. The Federal Reserve (Fed) monetary policy will continue unchanged. At the press conference, Fed chief Jerome Powell said the central bank could not think of stepping out of the crisis policy in the foreseeable future. “We’ll be there until it’s really over.

The corona crisis is depressing the economic recovery in the USA

How the economy continues to do so is largely dependent on containing the virus, Powell said. The virus is even the “most important economic factor“. And in this regard, as is well known, things are currently not going in the right direction in the USA. The number of new infections has been fluctuating around the 60,000 mark for days. Hospital beds are becoming scarce in many regions. On Tuesday, according to Johns Hopkins University, 1,592 corona deaths were recorded within 24 hours – the highest daily death toll since mid-May.

Against this background, the central bank came to the conclusion that the ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near future and pose significant risks to the economic outlook in the medium term. And in the past few weeks, there have been some signs that the increase in virus cases and measures to contain them are beginning to put pressure on economic activity again, Powell said.

Unemployment rate rose again

In line with this, an increase in weekly initial jobless claims was reported yesterday, the second in a row. These were 1.434 million in the current reporting week, after revising 1.422 million in the previous week.

Initial jobless claims in the United States

Of course, this development is also depressing consumer sentiment, which has recently given way again.

Consumers are becoming more cautious again

The Consumer Confidence Index surveyed by the Conference Board was given the day before yesterday with a July value of 92.6 points. The strong increase to 98.3 points from June was thus largely leveled out again.

Consumer confidence conference board

The University of Michigan came to a similar conclusion about two weeks ago.

Consumer confidence at University of Michigan

It was to be expected that the central bank would stick to the current exchange rate and not have topped up again, because the ball was now in fiscal policy, which Powell also revealed the day before yesterday. The US Congress is already putting together a new aid package. And the central bank will certainly make its future monetary policy dependent on the form of further stimulus provided by the US government.

From now on, $ 15 billion less income per week

However, the ideas of Democrats and Republicans who are negotiating the new aid package are far apart. And if this doesn’t change soon, it could be a big problem, even for the stock markets. Because, as we have already written to our readers of the premium trader, over 32 million people are currently unemployed in the United States. 25 million of them benefited from a temporary increase in aid of $ 600 a week (!). But now the last checks have been sent at this height. And that means that US citizens now have $ 15 billion less in income a week. This is money that is not spent and therefore cannot flow into the companies’ wallets. It is no wonder that Fed chief Powell is demanding that the government decide on new aid.

US economy slumped less than expected

Against this background, the United States’ gross domestic product (GDP) fell by an annualized -32.9% compared to the previous quarter in Q2 2020, after a decrease of 5.0% in Q1 2020 hardly decisive for the stock markets.

United States gross domestic product (GDP) development

The average forecast of -34.1% was struck, but the second quarter is far behind. The decisive factor was the renewed weak labor market data, which were again confirmed today with sharply falling share prices.

German economy slumped more than expected

And it was obviously also decisive that the economic output in Germany according to initial estimates fell in the 2nd quarter of 2020 by -10.1% compared to the previous quarter, after -2.0% in the 1st quarter. This was not only the sharpest decline since the beginning of the quarterly GDP calculations in 1970 and the minus was not only much more pronounced than during the financial and economic crisis (-4.7% in the 1st quarter of 2009), but there was also lagging behind (-9.0%).

Development of the gross domestic product (GDP) Germany

And maybe that’s why the DAX and Euro STOXX 50 gave way much more yesterday than the US indices. While the Dow Jones, the weakest US index alongside the S&P 500 and the Nasdaq 100, lost less than 2%, the DAX temporarily rose to well over 4%.

DAX slumps at a rapid pace

In the low, the leading German index corrected exactly 61.80% of the upward movement that started in June.

DAX - short-term chart analysis

If the index also falls below the 61.80 retracement, one should factor in an contradiction with the June low. Given the high downward momentum, I think this scenario is likely.

So the bears still took their chance (see yesterday’s internal exchange). And I assume that they will let off steam a little more now. Especially since the DAX with the following chart needs further correction to “digest” the entire price recovery since the March low.

DAX - target trend analysis

While in the first chart the 61.80 Fibonacci retracement was started, in the lower chart it is the center line at 12,235 points. If this does not offer a stop, the rectangle limit at 11,880 points is the target price. And if the DAX runs into this, I can well imagine that the Fibonacci brands (black lines) will still play a role here.

Conclusion

Current economic data from the United States are in line with Jerome Powell’s statements that economic recovery is under increasing pressure due to the spread of the virus. And the latest GDP data have made investors aware of the consequences. Accordingly, the stock markets fell significantly yesterday. If the bears stay on the ball and use their advantage, the seasonality could once again reduce some profits on the stock market.

I wish you much success in trading
your
Sven Weisenhaus

(Source: www.stockstreet.de)

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