Markets

Halver’s market assessment: “Yes, is it Christmas today?” – Columns

With expanded liquidity support from the ECB, the alliance between monetary and financial policy will be tied even more closely. Because despite vaccine prospects, further lockdowns prevent an economic recovery until spring. To compensate, additional economic stimulus programs are being launched with the help of the EU reconstruction fund, which is financed by the ECB. For the stock markets, the liquidity boom means Christmas, so to speak, for the whole of next year.

Vaccines are not yet able to thaw the cold economic winter

In view of the new Corona containment measures, the economic recovery is much more restrained than previously expected by the ECB. A double dip of the euro economy in the winter half of the year is inevitable. The ECB is expecting a less severe economic slump this year of minus 7.3 after minus 8.0 percent previously. For 2021 (3.9 after 5.0 percent), however, it appears to be much more cautious and expects that the recovery will not pick up until 2022 (4.2 after 3.2 percent). Above all, the slump in sentiment in the service industry will continue for the time being. Even the comparatively more stable industry cannot escape this minor mood. The ECB boss Lagarde explicitly emphasized that even the corona vaccines will not bring about a quick end to the economic downturn. It has thus opened the door even further to monetary easing in the fight against deflation.

In fact, the price trend in the euro zone of minus 0.3 percent in the last three months is stubbornly deflationary. The inflation outlook also remains sober: 2020 0.2 after 0.3 previously; 2021 1.0 instead of 0.7, 2022 1.1 instead of 1.2 and 2023 1.4 percent. In this respect, the ECB leaves the key interest rate at its current or a lower level until an average price increase of two percent occurs. “Average” means that if the value falls below this for a long time, an overshoot of more than two percent will not lead to any monetary policy restriction, but will be tolerated. Interest rate hikes are not expected before 2024, if at all.

ECB sets limits to the euro appreciation

The European Central Bank is using the current deflationary phase as a justification for weakening the euro. First, a euro slows down imported inflation to a two-and-a-half year high against the US dollar, among other things. commodity prices quoted in US dollars. The recovery in raw material prices is more subdued on a euro basis.

Without a doubt, the appreciation of the euro as a negative factor for exports is a thorn in the side of the ECB. However, Lagarde does not name an explicit pain threshold for the euro in order not to make itself officially suspicious of exchange rate manipulation. However, the foreign exchange markets have understood that European monetary policy is in a currency devaluation race with the Fed.

But as much as the firm euro is misused as an alibi for monetary policy freedom, there is little evidence of its long-term strength. Economic vulnerability, smoldering fires within Europe and sometimes a policy that ignores economic competence are not sustainable arguments for currency strength.

Patroness full of kindness, guarding the euro economy at all times

No government in the euro zone misses the abundant and low-interest liquidity supply for new economic stimulus programs. The emergency alliance between the ECB and financial policy is becoming even closer. Who wants to risk a new euro crisis or even social unrest?

Specifically, the ECB is dramatically increasing its liquidity provision with further emergency bond purchases (Pandemic Emergency Purchase Program) of over 500 billion euros until at least March 2022. Until then, it can take up all new issues of government bonds and at the same time lower the yields of euro government bonds even further. They have now fallen to record lows in Spain and Italy and below zero in Portugal. The ECB will also become the most important buyer of the European joint bonds of the EU reconstruction fund, which generously distributes financial gifts primarily to the euro periphery. Italy alone will receive 210 billion euros to cover all public investments for the next five years.

In addition, the ECB is providing three further targeted long-term loans (TLTROs) and four pandemic emergency loans (Pandemic Emergency Longer-Term Refinancing Operations, or PELTROs) on favorable terms until December 2021. She wants to cushion the negative effects for euro banks through liquidity bottlenecks and loan defaults of the impending wave of insolvencies from spring.

In the euro zone, the ECB continues to do the dirty work. It makes it unmistakably clear that it will prevent a new sovereign debt crisis. Falling default premiums in the Eurozone clearly show that the financial markets have no doubts about this consequence.

She will hardly be able to abandon this role, for the national governments have already got used to these blessings without any effort on their own. Nobody likes to leave their comfort zone. The spirit of the Bundesbank has finally escaped through the open windows on Frankfurter Sonnemannstrasse, the seat of the ECB.

Market situation – Don’t be afraid of stocks

Despite the currently precarious infection situation, investors are already thinking of the time after Corona given the positive vaccine news. This documents the significantly increased ratio of copper to gold. While copper, as a particularly cyclical industrial metal, is benefiting from the expected global economic recovery, gold is currently less popular due to the calming geopolitical and trade policy risks. Historically, similar developments have been accompanied by significant increases in interest rates on government bonds.

However, the central banks must continue to act as interest rate suppressors, as the rapid global debt – 2021 alone added 20 trillion US dollars – otherwise threatens the final system crash. The point of no return has long been reached.

The stock markets are not losing their most important argument, the liquidity boom.

Fundamentally, the economic expectations determined by the investment consultancy Sentix for the next six months are brightening across all regions of the world. The emerging markets of Asia with a focus on China, the USA and the cyclical and export-oriented Germany are certified as having the best prospects.

This development is reflected in profit growth. The Asian emerging countries are already as strong as they were before Corona. In the longer term, the Asian free trade agreement RCEP ensures even more profit potential. US profits are also evidence of far-sighted economic policy. In contrast, the competitive strength that has been neglected for years and the persistent lack of willingness to reform make Europe the bottom of the list in terms of profit prospects.

Against this background, the share chaff is also separated from the wheat. The US stock indices and those of the emerging markets of Asia are likely to continue to develop better than the European and German ones.

A decoupling of the stock markets from the real economy can undoubtedly be observed. In the USA in particular, the Warren Buffett indicator, which relates the market capitalization of a country’s stocks to the respective economic performance, is at an all-time high and thus signals extreme overvaluation, especially because of the tech giants.

But an imminent crash winter is not to be feared. For a start, stocks in other countries are far from their highs. In addition, the stock market will widen in 2021 and thus become more stable. The foreseeable relaxation in the trade war and the vaccine-based prospect of lockdown loosening from spring are giving momentum to cyclical stocks. They can be found not least in the value area, which can thus consolidate itself against growth. This means that the stock engine no longer runs on just one, the high-tech cylinder.

Last but not least, another mega-topic promises momentum on the stock market. If America under Biden is also devoting itself more to climate and environmental protection, this topic will also be important on the stock markets. Then alternative energy stocks will make up ground versus high tech. The same applies to stocks that meet the so-called ESG criteria (environmental, social, governance, i.e. environment, social and good corporate governance). If these are promoted more and more by the state, as in the EU, there is no getting around them.

However, the high-tech sector will continue to benefit from its solid business models. Fluctuations due to the accusation of dominant positions such as with Facebook must be taken into account. In contrast, smaller tech stocks that occupy niches will be in particular demand.

Overall, there is less to speak of industry rotation, but more of industry expansion.

Sentiment and chart technique DAX – The 13,450 mark remains a difficult nut to crack

The DAX is currently showing little interest in breaking out of the sideways trend. And in the US, too much of an overhang from optimists to pessimists speaks for temporary equity consolidations. In view of the generally robust outlook for the 2021 share year, however, price declines should be understood as an entry opportunity.

In terms of the chart, the first supports are at 13,236, 13,192, 13,004 and 12,960 points. Clear directional decisions, which also answer the last questions about the year-end rally, will only be made when the resistance at 13,450 and 13,500 is exceeded. This is followed by further barriers at 13,689 and 13,795 points.

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