Monetary policy overshadows weak corporate data

Geopolitical uncertainties and the effects of the trade conflict between the USA and China are causing a cooling of world trade, which especially the export-dependent industrial companies in Germany cannot escape. In the reporting season for the second quarter, domestic companies have revised their annual plans for 2019 by the dozen. Following the decline in 2018, DAX companies are threatened with a drop in profits for the second year in succession.

This is not reflected on the stock markets. DAX & Co are close to their annual highs. The fact that the market is still reacting to the known negative factors was last observed in mid-August. The mixture of hardened rhetoric against China, the prospect of a No-Deal Brexit and a government crisis in Italy actually caused the DAX to fall to our target of 11,500 points postulated for the end of the year.

However, it was not significantly stronger either. Since it is becoming increasingly clear that Trump will never completely break off the thread of the conversation, that a no-deal Brexit is off the table at least for this year and that the budget dispute in Italy has been postponed until further notice, we now expect a slight and volatile upward movement until the end of the year.

As soon as it becomes foreseeable that the industrial economy will find a bottom with the support of monetary and fiscal policy and ultimately not completely escalating trade disputes, corporate profits should also recover. Against this backdrop, we are raising our DAX forecast to 13,000 points by mid-2020. For the end of 2020, we expect a level of 13,200 points.

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