Frankfurt Equity markets have lost momentum and investor sentiment could deteriorate further over the next week. Frank Klumpp, equity strategist at Landesbank Baden-Württemberg (LBBW), puts it this way: “From a tactical, short-term perspective, the warning signals are increasing.”
The news of a likely tightening of the current lockdown is unsettling investors. The next federal-state summit in Germany will be brought forward to Tuesday, although it shouldn’t take place until January 25th. But the federal government is increasingly concerned in view of the hardly falling number of infections and the spread of still contagious virus mutations. Therefore, there are now calls for curfews, home office compulsory and a restriction of local public transport.
That pressed the Dax Already on Friday by almost one and a half percent and provided a weekly minus of almost two percent. The Dax has moved away from its all-time high of 14,132 points on January 8th.
According to LBBW estimates, a lockdown by mid-February will intensify the slump in private consumption to such an extent that, even with a strong economic recovery from the second quarter with successful vaccinations, the pre-crisis level will not be reached again until the end of 2022. Therefore, investors will pay close attention to the news about the Corona summit. The resurgence of the pandemic in China is also likely to weigh on the markets in the coming week.
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How does Joe Biden’s swearing-in work?
On Wednesday, the focus will first be on the USA, where Joe Biden will be sworn in as the 46th President of the United States in front of the Capitol. Actually, that would be a non-event for the markets. But the storm of fanatical Trump supporters on the Capitol on January 6th also leaves investors unsure about the inauguration.
Washington drives a large offer for security, up to 15,000 soldiers are to be deployed. There is also fear in many other cities in the United States that scenes similar to the storming of the Capitol could repeat themselves. The markets ignored the first attack on parliament and set new record highs a short time later. But renewed scenes that make people fear a civil war in the USA will probably not take the markets so easily again.
Economists like Cyrus de la Rubia from HSH Commercial Bank put it cautiously: The fear of new outbreaks of violence is one of the “political uncertainties”. The asset manager Western Asset Management sees the storm on the Capitol as a “decisive event with great consequences”. For investors this means: “The risks are omnipresent”.
Investors will also be keeping an eye on the US Treasury bond market. The courses had recently fallen there. In return, the yield on ten-year government bonds rose to 1.19 percent in the past week, the highest level since February. The reasons for this are fears of rising inflation in view of the larger economic stimulus programs under Biden.
In addition, US central bankers had brought discussions about an end to bond purchases into play. US Federal Reserve Chairman Jerome Powell said it was too early for these discussions. BayernLB is convinced, however, that this does not end the speculation. The yield on ten-year US bonds has fallen slightly again, but is still above the one percent mark.
Hope for support from the ECB
Against this background, the eyes of investors this week will also be on the European Central Bank (ECB), which will meet on Thursday. Investors like the fund house DWS expect at least some support here. The ECB will “under all circumstances avoid any signs that could be interpreted as restrictive,” says Ulrike Kastens, European economist at DWS.
The ECB will not announce any new monetary policy easing. It was only in December that the central bankers led by Christine Lagarde had increased their monetary policy, including increasing their bond purchase program by 500 billion to 1.85 trillion euros.
Investors will only find out from the end of January how the renewed lockdown consequences will affect European companies. Then the accounting season in Europe begins on a larger scale. Klumpp from LBBW fears: “The seemingly endless Corona winter could also leave its mark on companies’ profit statements.”
In the USA, however, the balance sheet season is already in full swing. Here come, among other things, figures from the major banks Goldman Sachs, Morgan Stanley and Bank of America. The focus is also on the numbers of the Corona profiteer Netflix, as well as that of the consumer goods manufacturer Procter & Gamble and the chip manufacturer Intel.
More: The stock exchange has long ignored the corona pandemic and lockdown. A look at the key figures reveals the first alarm signals.