The RoboMarkets Weekly Review and Outlook

Jürgen Molnar, Capital Market Strategist

04 September 2022

The positive news of this trading week is that the DAX came dangerously close to its low for the year, but was able to catch and stabilise at the 12,600 mark. With the small glimmer of hope of a slowdown on the buzzing US labour market, the index can even set course for the psychological hurdle of 13,000 points again.

However, a sustained recovery seems unlikely. This is because the market has started the statistically weakest stock market phase of the year under the most unfavourable conditions imaginable, both technically and fundamentally.

315,000 new non-farm payrolls in the US in August were again slightly more than expected, but at least the wage development figures give hope that the situation on the American labour market could ease somewhat in the coming months. Wages rose by 5.2 per cent, slightly less than expected.

However, while the latest economic data from the USA all in all indicate that the economy remains robust, the worry lines and thus the dangers of recession in China and Europe are becoming greater. The government in Beijing strictly adheres to its zero-covid policy and this week again sent 21 million people in Chengdu into lockdown.

Bottlenecks in The Energy Market

The current turbulence on the energy market could make for a hard winter in Europe. After the price of electricity has already moved in only one direction in the wake of rising oil and gas prices, the supply side is now collapsing further. Due to the low water levels, coal-fired power plants in Germany are already forced to produce less electricity.

Of the nuclear power plants in France, only one in two is still on the grid. The country now produces so less electricity that it has to import it instead of supplying its neighbour countries as before.

Inflation Stays in Focus

It is above all the rising energy prices that are continuing to fuel inflation. Next Thursday’s ECB meeting is probably the most important date of the week on the calendar. The latest increase in consumer prices in the Eurozone by 9.1 percent in August forces the central bank to act decisively now. Even in Germany, prices rose more than expected last month with the 9-euro ticket and the petrol rebate.

This is raising fears of double-digit inflation in the coming months and putting even more pressure on the ECB. Even a historic increase of 75 basis points on Thursday would therefore no longer be a real surprise. However, this would make bonds even more attractive compared to the currently high-risk equities and the stock markets would lose further potential buyers.

The DAX is not likely to look quite so golden in the coming week. There can be no talk of a sustainable upward trend reversal until the resistance at 13,150 points is overcome. Whether the market is in a position to do so in the coming week may also depend to some extent on whether Russia allows gas to flow through Nord Stream 1 again on Saturday, because the presumably so-called maintenance work is supposed to be finished then.

DAX – Current Supports and Resistances

Supports: 12,600/12,629 + 12,420/12,370 + 12,000/12,100

Resistances: 12,800/12,830 + 12,950/12,970 + 13,050/13,150

This article is from RoboMarkets.