Dusseldorf The German stock market is saying goodbye to the current trading week. The Dax closed in Friday trade 0.5 percent higher at 15,543 points. From a weekly perspective, the leading index has therefore trended sideways: At the start of the week on Monday, 15,518 points were on the scoreboard.
With the daily high on Friday at 15,614 points, the German benchmark index confirmed the short-term upward trend that it began last week. On a weekly basis, there was a new high and a higher low – the classic definition of an upward move. Last week’s high was 15,598 points and was exceeded on Friday noon. Last week’s low of 15,012 digits was never seriously compromised.
However, the leading index was unable to maintain its position above the 15,600 point mark. That is what will be important if the Frankfurt benchmark wants to continue its rally. For Jörg Scherer, technical analyst at HSBC Germany, a breakout above 15,600 points would be “the next buy signal towards a record high”. The record high is 16,030 points and was reached in mid-August.
Even the weak purchasing manager indices could not stop the Dax. Surprisingly, the German economy lost much of its momentum in October and is apparently heading towards stagnation. The purchasing managers’ index for the private sector fell by 3.5 points to 52.0 points, an eight-month low.
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Economists surveyed by the Reuters news agency had only expected a drop to 54.0 points. Material bottlenecks and the resulting slowdown in demand in the automotive sector were a drag on production in October.
The barometer is still above the growth threshold of 50 points. In the US, meanwhile, no major changes are expected in the purchasing managers’ indices. Experts anticipate a decrease from 55.0 to 54.7 points on average.
Dangerous downward spiral in Turkey
The Turkish central bank started a dangerous downward spiral with yesterday’s unexpectedly significant interest rate cut from 18 to 16 percent with an inflation rate of almost 20 percent. The renewed interest rate hike down – the real interest rate in Turkey is now even lower in negative territory – current consumption and investment are stimulated. The already growing Turkish economy continues to grow.
However, this will further intensify the already very high inflationary pressure in the country. It is foreseeable that the central bank will not respond to the orders of President Erdogan with higher interest rates. Erdogan believes that falling interest rates fight inflation – a strategy that is not supported by theory or empirical evidence.
This development, in turn, weighs on the Turkish lira. The rapid decline in the currency makes foreign investments unattractive. For example, Turkish government bonds are currently yielding between 15 and 20 percent. But since March alone, the lira has lost around 30 percent of its value against the euro. And hedging against falling prices is currently very expensive because the currency is so volatile.
The consequences of Turkish monetary policy on the foreign exchange market are immediately foreseeable. As on Thursday, the euro and dollar are climbing to new record levels in relation to the Turkish currency. The new record for the euro is 11.2424 lira. On the dollar side, the new high is 9.6581 lira.
This downward spiral can only be stopped by a change of heart in monetary policy. Ulrich Leuchtmann, foreign exchange expert at Commerzbank, believes that a rethink is unlikely – “at least as long as the lira depreciation does not become so apocalyptic that it forces a rethink”. His conclusion is: “It can be assumed that it will get much worse before it gets better.”
Because of the ongoing decline in the Turkish lira, more and more investors are buying bonds from the country. This drove the yield on the ten-year government bond to 20.575 percent. The value is only slightly below the record level of 20.7 percent, which was reached in August 2018 during the currency crisis in some emerging countries. In mid-September of this year, the return was 16.49 percent.
Look at individual values
German postal service: Deutsche Post DHL does not expect large leaps in parcel volumes for this year’s Christmas season, but it still expects very strong business. The share went up 1.2 percent.
Siltronic: The SDax shares were able to limit their minus to 0.7 percent in the evening because the takeover of the wafer manufacturer by the Taiwanese chip supplier Globalwafers has been delayed. Due to protracted discussions about regulatory approvals, the merger with Globalwafers will probably not be completed this year, according to Siltronic.
RWE: After a buy recommendation, the energy supplier’s shares were up 1.1 percent at the end of trading. HSBC analysts have upgraded the stocks to “Buy” from “Hold”.
Continental: The acute shortage of chips and fragile supply chains are again forcing the auto supplier to lower the business outlook. Group sales are now expected to be between 32.5 and 33.5 billion euros, which is one billion euros lower than previously forecast. The share was able to gain up to three percent, because a higher forecast lowering was apparently expected. The bottom line is an increase of 0.5 percent.
What the Dax chart technology says
According to the technical analysis, the medium-term Dax picture is gradually improving: The Dax has held the strategically important zone slightly above the 14,800 mark. Even the long-term important 200-day line, which is currently at 15,101 meters, has not yet been undercut on a sustainable basis.
With the new highs in October, an important trend-following indicator generated a buy signal. The name for this is MACD (Moving Average Convergence / Divergence) and consists of two moving averages.
For the technical analysts at HSBC Germany, this indicator gives “a buy signal for the first time since the end of July” – the best since November 2020. To explain: In both cases, the Dax then rose significantly. In November 2020 the stock market barometer was at 11,450 points, then the starting signal for the vaccine rally was given. And in July the Dax slipped to 15,000 points, after which the record high of 16,030 points was reached.
However, the resistance on the way up is varied, especially in the range between 15,550 and 15,600 points. The breakout beyond that should be seen as the next buy signal towards a record high.
Click here to go to the page with the Dax course, here you can find the current tops & flops in the Dax.