Stock markets

Stock markets on the hunt for records

Although the current reporting season shows that companies are experiencing a significant headwind as a result of the ongoing political disputes, this is not the case with the rest of the world. Capital expenditure in particular is suffering from continued uncertainty. Actually, this is not the ideal environment for the stock markets. But the markets live from expectations, which have become less negative in recent weeks. Brexit, for example, is not being resolved, but is being postponed again by three months. And the USA and China have approached each other in the trade dispute. Hopes were nourished that a partial agreement would be signed at the Asia-Pacific summit in Chile in November. The summit has now been cancelled because of the unrest in Chile, but the US still does not expect any delays. The expansionary orientation of the central banks is also having an effect, at least on asset prices….

No end to uncertainty yet

Uncertainty remains the determining factor for the economy and financial markets. The Brexit and the US-Chinese trade dispute, two of the most important political issues, may have come closer to a solution in the last few days. However, it is not yet clear where the journey is heading. As for the week ahead, important economic data is expected from both sides of the Atlantic. Economic growth in both the euro zone and the United States is likely to have slowed again in the third quarter. Investment in particular is suffering from continued uncertainty, while companies remain cautious in the face of a lack of clarity regarding future prospects. Growth in the euro zone is likely to have been considerably weaker than in the USA, and between July and September it was only just above zero. Industry in particular is suffering as a result of the international pressures. This is particularly…

Money market in the USA dries up, US Federal Reserve now steers against it

The liquidity problems on the US money market have existed for some time and have steadily intensified in recent months. In mid-September, the US Federal Reserve pumped liquidity back into the money market for the first time in more than a decade. The measure became necessary after the effective funds rate (EFFR), i.e. the interest rate at which banks lend money to each other, had risen significantly. The trigger for this escalation was a chain of events – such as the quarterly payments of corporate tax or the payments for new T-Bill issues by the banks – which all contributed to a further shortage of already tight liquidity. As a result, the US overnight repo rate rose sharply (intraday: 10%!). The Fed had to intervene with several injections of liquidity totalling around USD 75 billion, causing money market rates to fall again. After that, it was actually clear that the…

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…

Purchasing managers‘ indices in the euro zone: Bad mood in September

According to the September survey, the comprehensive composite purchasing managers‘ index for the euro zone lost 1.5 points and at 50.4 points (75-month low) is only slightly above the growth threshold of 50 index points. The decisive factor was a significant decline in demand from service providers and industry. In particular, the downturn in industry has accelerated again, and it seems to be increasingly the case that the previously robust services sector is being pulled down as well. According to IHS Markit, sentiment barometers in the entire currency area have been lower than they have been since 2013. The German economy, and German industry in particular, appears to be increasingly at the centre of economic weakness. And according to business expectations, there is no turn for the better in sight. At the end of the third quarter, the growth prospects for the euro zone are clouding over on the basis…

ECB pushes investors out of the market

Bond purchase programmes by central banks represent massive market interventions that have a lasting effect on supply and demand. The ECB’s first QE programme, which was launched in spring 2015, also had a noticeable impact on EMU’s capital account. In 2014, foreign investors had bought EUR 114 billion in EMU bonds. In 2015, however, this sum was reduced to EUR 30 billion. In the following three years, the situation turned around and foreign investors sold an impressive EUR 470 billion in EMU bonds. Domestic investors also did not remain unaffected by the massive intervention of the ECB: they fled en masse into foreign bonds and shares (EUR 1,500 billion in 2015-2018). With the end of the programme in December 2018, however, the tide turned again. In the first seven months of this year, purchases of EMU bonds from abroad amounted to an impressive EUR 213 billion. French, Italian and German…

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