Frankfurt On Tuesday afternoon, the Dax cannot use the good specifications from Wall Street the previous evening and from Asia. The leading German index is at 15,066 points, down 0.3 percent. Munich Re, Hannover Re, RWE and Eon provide a certain amount of support with price gains of more than one percent each. According to DWS, the current purchasing manager indices for January from Germany reflect an “expected phase of weakness” in the German economy. However, the assessment of the companies is better than in the past seven months.
Stock market analysts are not surprised by the pause in growth. “European investors first have to digest the incredible spurt,” says Mathieu Savary from the renowned Canadian analysis firm BCA Research.
He is referring to the strong growth that European stocks and the euro have posted since October. The shares measured by the Euro Stoxx 50 index are up 26 percent, and the euro gained around ten percent against the dollar over the same period.
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Over the long term, Savary remains optimistic about European investments. But in the short term he warns: “In the next few weeks you should expect sideways movement at best, and a correction at worst.”
Inverted yield curve points to recession
Philip Bold, fund manager at Luxembourg’s Ethenea Independent Investors, is also cautious. The expert looks at the so-called inverse yield curve in the USA.
On the world’s most important financial market, Wall Street, government short-term interest-bearing securities bear higher interest than long-term ones. Six-month bonds are currently yielding 4.8 percent, while ten-year bonds are yielding less than 3.5 percent. Bold puts it this way: The players in the bond market consider a recession to be likely.
“Although everyone is talking about the recession, the stock market, which anticipates the development of the real economy, only seems to take into account a relatively mild downturn,” says the expert. Although share prices have already suffered greatly in the past year, “a profit recession on the part of companies would take further tolls.”
Michael Winkler, head of investment strategy at St. Galler Kantonalbank Germany, thinks similarly: “The markets are currently pricing in little or no risk and do not want to spoil their good mood.” This is particularly surprising because ECB boss Christine Lagarde has just started confirmed the central bank’s determined action against the high price pressure and encouraged investors to reconsider an overly optimistic approach.
The early economic indicators only gave a partial all-clear. For the first time in six months, corporate sentiment in the euro area is pointing to economic growth. The S&P Global Purchasing Managers’ Index rose 0.9 points to 50.2 points compared to the previous month, market researchers said on Tuesday.
With a little more than 50 points, the indicator is back in the range that indicates economic growth. In the previous months, the indicator had also signaled contraction due to the Ukraine war and inflation.
For Germany, on the other hand, the economic barometer signaled a contraction at 49.7 points. After all, the descent slowed down for the third time in a row. The decisive factor was the service sector, which according to S&P recorded slight growth for the first time since June.
Good vibes from overseas
European and German stocks could continue to receive tailwind from the USA due to a better mood. Robert Rethfeld of Wellenreiter Invest recognizes that technology stocks on Wall Street have been rising faster than the overall market since the beginning of January. The expert also concludes from other observations that this development and an increasing willingness to take risks among investors will continue.
In view of these different assessments, the forthcoming economic data and quarterly figures from companies could provide new impetus for the markets. On Wednesday, numbers will come from the Dutch chip producer ASML, in the USA from Tesla, Boeing and AT&T. For Germany, the Ifo business climate index for January gives an insight into the current situation of local companies and their business expectations.
The next meetings of the central banks with the expected interest rate decisions are also in focus. The February 1 Federal Reserve meeting is expected to see a 25 basis point hike in interest rates, investors say. The ECB, on the other hand, is expected to take steps twice as high and thus half a percentage point each at its next meetings in February and March.
Individual values in focus
Continental: The automotive supplier recently caused a price setback with bad reports. Tuesday will continue to go down. The stock is down half a percent.
Infineon: The chip manufacturer can only benefit from the good specifications of the US tech values and the chip manufacturer at the beginning of trading, later losing 0.7 percent.
Rheinmetall: The armaments group expects eleven to twelve billion euros in sales for 2025, CEO Armin Papperger told the magazine “Stern”. In November, Rheinmetall announced a sales target of ten to eleven billion euros for 2025. After initial gains, the papers are down almost one percent in the afternoon. 0.2 percent.
Munch Re and Hannover Re: The two large reinsurers are bracing themselves against the uncertain overall mood. They lead the Dax in the afternoon with gains of over one percent.
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