Markets

Halver’s market assessment: Economic outlook – Even the coldest winter cannot prevent next spring – columns

The corona pandemic and the uncertainty about the extension or tightening of economic closings suggest a harsh economic winter. But point to a geo- and trade-politically friendlier Biden government, positive vaccine developments and the worldwide continuation of the lush economic stimulus programs for thaw next year. In addition to fundamental improvements, the evergreen “liquidity boom” speaks clearly in favor of stocks.

The economy goes into hibernation

The second lockdown wave makes zero winter growth in Germany and the euro zone likely. In any case, the uncertain pandemic development and the associated question of extending or tightening lockdown measures are creating a minor mood.

And indeed, there is no sign of pre-Christmas joy among German consumers. According to GfK, propensity to buy, income and economic expectations as well as the consumer confidence index have generally deteriorated further.

The German companies surveyed by the Ifo Institute are also becoming more skeptical. Business climate, situation and expectations are falling. Obviously, future economic developments are viewed with particular skepticism.

If one puts the business situation and expectations in relation to one another, the economic development even works its way further into the economic cycle phase “downturn”.

America’s New Deal 2.0

In the USA, on the other hand, the sentiment indicators for industry as well as the service sector are showing a robust constitution, although the pandemic is raging and politicians at odds in the old legislative period can no longer agree on new economic aid.

The American stock market is also optimistic about the future. On the one hand, the new Biden administration does not stand for a hard-hitting Trumpian deglobalization policy, which also strengthens the global economic boost. On the other hand, the new government is expected to carry out extensive economic stimulus programs. The majority in the Senate is likely to remain Republican after the Georgia runoff elections in January, which does not make it easy to pass economic stimulus packages.

However, the new US Treasury Secretary Janet Yellen, who has already pursued a clearly business-friendly monetary policy at the top of the Fed, is both assertive and convincing. She always paid attention to a balanced relationship with both political camps. It will make it clear that America cannot overcome the economic consequences of the pandemic without the most permissive fiscal policy possible.

Asia as the engine of the world economy

The emerging countries in the Far East in particular have regained a great deal of their pre-coronal economic strength. Incidentally, that also helps Japan. In the longer term, an Asian free trade agreement will ensure even more economic strength. As they are heavily indebted in US dollars, Biden’s geopolitical détente policy also suits them and their stock markets, which no longer makes the US dollar the ultimate safe haven.

And in contrast to Latin America, the Asian markets do not show any underdevelopment compared to those of the industrialized countries.

In Europe, the business night is darkest before morning

The European stock markets are not showing any real winter blues either. The mood in the service sector continues to deteriorate. But it remains stable in industry.

In fact, European manufacturing is benefiting from increased exports to Asia. The ifo export expectations, which are currently falling, should stabilize in future in view of the regained strength of Chinese industry, which has a lead.

In Europe, politicians are trying to prevent a double dip with the most “intelligent” lockdowns possible, in which two phases of contraction follow one another within a short period of time. It is true that social contacts and consumption and leisure opportunities are limited. If, however, companies and shops remain open and strict exit restrictions are avoided, the virus can be brought under control and at the same time the economic damage can be kept as low as possible.

It will take until the middle of 2021 for states to vaccinate their citizens with the new vaccines. But the more economic closings are phased out in this way, the closer to economic normality. And the purchasing power that has been built up will find its way into restaurants, pubs, hotels, cinemas, travel, etc. all the more. Then even the badly battered service sector would face a tremendous renaissance.

In any case, the European governments and Brussels will take additional economic measures. After a budget deficit in the eurozone totaling around 10 percent this year, it will still be a worryingly high 6 percent in 2021. In view of the Corona crisis, no political rooster in Europe will crow for stability. Unfortunately, the pandemic is also an alibi.

The ECB remains the “business partner” of European fiscal policy

The ECB will provide enough liquidity so that all new issues of eurozone government bonds will be fully absorbed in 2021 as well. At the same time, it will have to play the cleaner for the wave of expected bankruptcies and thus loan defaults at banks, which are typical lag indicators only at the beginning of an economic upswing.

Accelerated inflation will ignore the ECB like the fox vegetarian food. It has long propagated to accept higher price increases in order to compensate for too low in earlier times. With this “secularization” of once sacred stability criteria, the ECB wants to prevent systemic debt crises, which undoubtedly arise when lending rates rise significantly.

If you look at the further falling government bond yields of euro countries, the ECB has undoubtedly fulfilled its mission and will continue to do it in the future. With this planned economy, market-based creditworthiness issues and the associated rating downgrades lose their importance.

The brave new ideal world of the central banks, which nod off the spending requests of financial politicians without much consideration, leads to a dangerous habituation effect. How do you ever want to escape from this comfort zone of the state economy financed by monetary policy without risking (socio) political turbulence? Probably not anymore!

Overall, the economic environment will remain difficult until the first quarter of 2021. From today’s perspective, however, the economy will grow strongly for the year as a whole.

Market situation – “Always look on the bright side of life”

Trump is finally clearing the way for Biden, who does not see the world as an arena. This will make the political framework for the stock exchanges more stable again. Nobody has to fear the next ad hoc tweet anymore.

And while global economic aid fundamentally helps the stock markets, the cheapest interest rates continue to prevent a valid alternative investment in the bond sector.

Together with vaccines that are boosting the economy, the outlook for the stock markets in 2021 is positive. The longstanding bull market will continue into the next year.

The reflation gives stocks in principle, but especially cyclical stocks, a further boost compared to high-tech and defensive stocks.

The cyclical broadening of the market is very healthy to escape the exclusivity of US growth stocks. If five large US Internet companies are valued around three times as high as all stocks in Germany and Great Britain put together, the risk of larger consolidations is especially given if corona profiteers lose to the pandemic boom.

Sentiment and chart technique DAX – Intermittent cold spells possible, but …

Certainly, unfavorable lockdown developments with negative economic consequences and the “waiting for Godot”, the waiting for concrete positive vaccine news, are causing uncertainty among investors. An excessively large overhang of optimists on pessimists on the US stock market is also a reason for short-term consolidation.

In view of the robust outlook, however, price declines should be understood as an entry opportunity. In this context, regular savings plans are still in demand, perhaps even as a Christmas present for loved ones.

In terms of the chart, the first supports are at 13,237, 13,190, 12,950 and 12,901 points. Clear directional decisions, which also affect the question of the year-end rally, will only be made when the resistance breaks at 13,460 or 13,600.

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