The stock markets are starting the new week with a tailwind. The majority of analysts expect share prices to continue to rise, mainly thanks to the fall in capital market interest rates. Economic and geopolitical risks are receding into the background for the time being.
6 November 2023. FRANKFURT (Börse Frankfurt). The DAX gained 3.4 percent in the past week, almost completely erasing the losses from October. Massive support came from the interest rate side. The yield on the ten-year German government bond fell significantly from 2.85 percent to 2.66 percent after the US Federal Reserve meeting on Wednesday. The situation was similar in the US, where the yield on 30-year paper actually recorded its biggest weekly loss since March 2020.
This trend was accelerated at the end of the week by the US labor market data, which indicated declining momentum. According to Bernd Krampen, analyst at NORD/LB, the Fed is no longer under pressure to act: "It should now wait and see in order not to increase the risk of a 'harder economic landing'. A first interest rate cut is likely to be necessary in mid-2024 anyway due to the economic situation."
Interest rate hope and profit scepticism
Helaba's economists also share the view that the interest rate plateau has probably been reached: "The past week of trading has led to the realization that the interest rate crisis will not worsen any further. This gives hope for a continuation of the upward trend that has just started on the stock markets. According to research by LBBW, a look at history shows that the prospects for equities clearly improve after a key interest rate peak. However, due to the falling profit estimates for companies in this country, it could "still take some time for the stock markets to 'swim free' again".
The highly experienced fund manager Jens Ehrhardt, on the other hand, is optimistic in the short term, but has doubts about the sustainability of the rally. He is hopeful due to the positive market technology (relatively high pessimism) and the supporting seasonal rhythm until the end of the year. However, in his opinion, the consequences of the "fastest, strongest, and most internationally compliant interest rate hike policy" are likely to lead to internationally falling share prices again as early as 2024: "In the past, the actual bear market in equities began with the central bank's interest rate cuts and the recession that usually followed".
Green stock market lights in the short term
The experts at Commerzbank argue similarly. According to them, the Fed meeting, which the market perceived as dovish, has the potential to give the capital markets a further boost: "The recovery should initially continue in the coming weeks". However, the analysts' earnings forecasts for 2024 are still classified as "too high", which is why it is still too early for a sustained upward turnaround in the DAX.
However, hopes of a year-end rally remain unaffected for the time being. According to Helaba, the stock market lights are still green this week. According to the experts, the time to buy shares is currently favorable. The Helaba BEST indicator (valuation, expectations, sentiment, and technology), which was developed to support timing issues, is currently providing "a clear buy signal". Among other things, the valuation of the DAX is now as low as it was in the fall of last year, when a price rally also began.
Many DAX companies with figures
After numerous exciting economic data releases recently, this week will be much quieter from this side. This also applies to the reporting season in the USA. Over 80 percent of the S&P 500 members there have already presented their results. In Germany, on the other hand, companies are not quite as far along yet. The DAX companies Adidas, Airbus, Allianz, Bayer, Commerzbank, Continental, Daimler Truck, Deutsche Telekom, DHL Group (formerly Deutsche Post), E.On, Hannover Re, Henkel, Merck, Munich Re and Siemens Healthineers, for example, will open their books over the course of the week. Investors will then take a very close look again.
Technical picture gives hope
This morning, the DAX is hovering at around 15,210 points following friendly indications from the USA and Asia.On Friday, the German benchmark index had closed slightly lower at 15,189 points.Jörg Scherer, technical analyst at HSBC, interprets the recent upward movement of the DAX, including the recapture of the resistance zone at 14,800/15,000 points, as "a real sign of life".The next important run-up zone is now in the area of the horizontal barriers at 15,500/15,600 points, where the 38-week line also runs. A jump over these hurdles would be "yet another exclamation mark on the chart". The chart technician sees the first significant support at the most recent upward price gap between 14,950 and 15,028 points. He described the formation of this upward gap in combination with the closing of a previous downward gap during the week as a "trend reversal signal that is as rare as it is reliable".
Important economic and business events of the week
Monday, 06.11.23
10.30 am. Eurozone: Purchasing Managers' Indices. The overall index is expected to come in unchanged at 46.5 points.
10.30 am. Eurozone: Sentix economic index. The indicator compiled by the Sentix analysis institute is expected to continue its downward slide. After a drop of 21.9 points in October, a value of minus 22.5 points is expected this time. The current situation is likely to remain significantly worse than expected.
Tuesday, 07.11.23
08:00 am. Germany: Industrial production. According to Commerzbank, the data should show that industry remains the Achilles heel for the further development of the German economy for the time being. Estimates are for a decline of -2.7 percent yoy and -0.4 percent month-on-month.
11.00 am. Eurozone: Producer prices. Deka expects a 0.6 percent month-on-month increase in the September figures due to higher energy prices. The consensus forecast is for a slightly more moderate rise of 0.3 percent.
Wednesday, 08.11.23
11.00 am. Eurozone: Retail sales. While economists on average still expect a decline of 0.3 percent for September compared to the previous month, NordLB is quite optimistic in its estimates, with a plus of 0.1 percent.
Thursday, 09.11.23
13.30. USA: Initial jobless claims. NordLB expects 220,000 applications this week for this data, which is particularly relevant with regard to further interest rate developments.
Friday, 10.11.23
16.00 hrs. USA: Michigan Index. According to consensus estimates, consumer sentiment in the US is expected to have deteriorated slightly in November. Specifically, a decline from 63.8 to 63.5 points is expected. Deutsche Bank's US economists, on the other hand, expect the consumer sentiment index to rise to 65.0.
by Thomas Koch, 6 November 2023 © Deutsche Börse AG
Thomas Koch is a CEFA investment analyst, investment specialist for structured products and certified certificate advisor. Since the beginning of 2006, he has been covering events on the capital markets as a freelance journalist.
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