Markets

Halver’s market assessment: secular stagnation ahead?

Secular stagnation is a long phase with no or only weak economic growth. The economic environment is characterized by low real interest rates and low inflation expectations. Classic monetary policy is pretty powerless, because nominal interest rates are already zero or even below. Another area-wide lockdown would favor this less than charming economic scenario with collateral damage for the stock market.

Sword of Damocles Lockdown

The number of new infections is increasing rapidly worldwide. Entire countries such as Ireland are now being quarantined again. Also in Germany – as in Berchtesgadener Land – curfews have already been imposed. Relaxation is not to be expected for the time being.

This development is also reflected in the Corona easing indices. Using mobile data from the Google COVID-19 Community Mobility Reports, they provide movement trends in retail, grocery stores, pharmacies and at work. Depending on the country, the economic consequences of the containment or easing measures can be identified. Recently they have fallen again in trend.

Sentix economic expectations are already tending towards lethargy in all major economic regions for the next six months after a brilliant V-shaped course.

And in the USA the economic trees do not grow into the sky either. After a clear easing of the situation, initial jobless claims remain at a comparatively high level, as does the likelihood of a recession in consumer-heavy America. America is clearly in dire need of a second stimulus package.

Increasing large lockdowns would suggest a W-like world economic development with all also social problems. This is already suggested by the economic surprise indices calculated by Citigroup for the countries that clearly “surprise”, that is, give way. They measure the deviation of real economic data from those estimated by economists.

In order to prevent lockdowns, German politicians must ensure nationwide uniform and simple corona rules such as those for the game “Mensch ärgere dich nicht”. Chaotic rules of the game are just confusing. In addition, they must be applied uniformly and, last but not least, punished equally in the event of violations. Anyone who refuses to take coronal protective measures and is therefore jointly responsible for high reproduction rates and quarantines in companies and schools can then also pay the bill. We are not a convenience economy.

The most contagious virus is fear

Politicians must also encourage the citizens at the same time. With all due caution, we must not degenerate into the “toilet paper economy”, in which people only dare to leave the house out of fear to buy everyday goods. By the way, in addition to Corona, loneliness, existential fear, depression, alcohol and drug consumption or domestic violence are serious health risks that are exacerbated by a long recession.

In fact, according to GfK, propensity to buy, economic expectations and the consumer climate index have clouded over again after recovering from their lows. Company closings and the risk of unemployment would deepen the minor mood.

Basically, China will not save us economically on its own, especially since the recently robust economic growth there is due to dramatic public investments in state-owned companies. In contrast, consumption remains relatively weak.

You can lead the horses to water, they have to drink themselves

Monetary policy remains very permissive in view of the low inflation expectations.

However, it fails to effectively stimulate corporate and household credit growth. Excess liquidity in the eurozone has reached a new record high, but it is not reaching the private sector accordingly. People there are obviously skeptical about the future.

To compensate for this, the ECB is becoming a public financier. It ensures that the galloping debt remains affordable for the purpose of government stimulus measures by means of the lowest lending rates. In view of the coronal and structural economic barriers, it will continue to play this role for a long time.

Market situation – fundamentally ugh, in terms of liquidity hui?

In addition to the risk of lockdown, the US presidential election and the Brexit question remain factors of uncertainty.

Joe Biden is ahead in polls and the majority of the still undecided voters are inclined to him and not like Trump as it was four years ago. But due to majority voting and the politically insecure swing states, it remains unclear who will win the November 3rd election. A clear result is desirable in order to prevent democratic unrest. It is also uncertain whether the Democrats will win the Senate as well as the House of Representatives. If the Biden camp achieved the triple and could “rule through”, that would not necessarily please the US stock markets. The Democrats could come up with “stupid ideas” in terms of economic policy. A stalemate between the House and Senate would please the stock markets better.

The EU and the British government are playing big games on the Brexit issue. Johnson even shows political theater on a level that would make even Shakespeare jealous. Whether it comes to a halfway friendly divorce depends largely on who will be sitting in the Oval Office of the White House next. If his friend and EU-phobic Trump were to be re-elected, and with it the prospect of a purely ideologically good trade agreement between the United Kingdom and America, Johnson would probably slam the door in the face of the EU. With Joe Biden, however, the situation would change radically. For him, a pragmatic agreement with the much larger EU economic area has priority. In this case there would still be a chance – in accordance with British necessity – of averting a dirty Brexit that is economically damaging for both sides.

This fundamental uncertainty as a whole is also reflected in the expected earnings growth. Although the earnings figures are recovering, they are still negative compared to the previous year. The situation in the euro zone is particularly precarious. Here, profit growth shows no improvement, which is not least due to the lack of digitization and reform policy.

So is the stock market threatened?

A tightly knit safety net against imminent break-ins still offers the unprecedented liquidity position. And the interest rate diaspora relativizes the absolutely highly valued stock markets.

Incidentally, further government stimulus packages to combat secular stagnation are likely to be taken through the continued permissive monetary policy. Before the federal election, no party will allow itself an open economic flank. In any case, the suspension of the debt brake is likely to become the rule rather than the exception. It is to be hoped that new state financial injections will also be used extensively to remedy the structural deficits.

A more innovative economic policy would give the German stock market a fundamentally sustainable boost.

Sentiment – Currently stalemate

Institutional investors who speculate on Eurex have recently relied heavily on puts and thus declines on the stock market due to uncertainty. After all, the stock market is thus protected against major gloom.

Movement comes into play on the timeline. At least two sources of political uncertainty will disappear in the coming weeks with the presidential election and the Brexit decision. Then you can see more clearly.

However, a rapid upward outbreak of the sideways movement between almost 12,000 and around 13,300 DAX points that has existed since June is not to be expected. The development of the R-rate is of great importance for the further mood on the stock market. It shows the coronal contagion dynamics and is therefore the decisive indicator for the effectiveness of the measures taken and, above all, the lockdown probability. The year-end rally stands and falls.

Chart technique DAX – sideways

Maintaining the 200-day line at 12,413 DAX points is psychologically important. In terms of the chart, the first stop lines are below at 12,250 and 12,142 points. In the event of a recovery, the index will initially encounter resistance at 12,600 and 12,675. This is followed by barriers at 12,802 and 12,857 points.

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