The RoboMarkets Weekly Review and Outlook

Jürgen Molnar, Capital Market Strategist

09 September 2022

When all the reviews of a positive trading week had already been written, the news came shortly before last weekend that no more gas will flow through Nord Stream 1 for the time being. Both the DAX after hours and Wall Street slumped, having previously taken a positive view of the labour market data. As expected, the price of European natural gas jumped on Monday, dragging the stock market down with it. But investors relatively quickly pushed aside the question of how Germany’s economy and households will get through the winter without Russian gas and the DAX back towards 13,000 points.

Even the European Central Bank’s historic decision to raise the key interest rate by 75 basis points ended up moving the stock market less than expected. Much ado about nothing, one might think. Admittedly, the DAX swung down and up following the decision, but then went out of trading almost unchanged. US Fed Chairman Jerome Powell also reaffirmed the consistent course of interest rate hikes.

But here, too, Wall Street remained on course, all negative news seems to be priced in and an oversold market is trying to turn the corner. While one part of the investors is avoiding the stock market for the time being with the prospect of further rising interest rates, the other part sees the consistent and concerted fight of the central banks against inflation as a good signal for the future and is grabbing stocks regardless of all the risks.

Inflation data and Bank of England meeting

How successful this battle has already been or how much ground still lies ahead for the central banks to push inflation back towards the two per cent target should become a little clearer in the coming week. On Tuesday, consumer prices will be reported from the USA. There has been some easing here recently after inflation came back a little in July at 8.5 per cent. Anything that confirms the downward trend is likely to be received positively by the stock markets.

On Wednesday, the leading indicator for inflation will be producer prices. Monetary policy will be interesting on Thursday when the Bank of England meets for its next meeting. With an inflation rate of a good ten per cent, a further increase in the key interest rate by 0.5 per cent to 2.25 per cent should be almost decided. However, BoE representatives have recently dampened interest rate fantasies in the United Kingdom with a view to the negative effects of quantitative tightening.

Light and Shadow at the Companies

On the corporate side, Lufthansa may have set the course for a positive future last week. Major shareholder Kühne let it be known that he continues to have an undiminished interest in the airline and wants to expand his current 15 per cent stake. At the same time, the pilots’ union and the company reached a deal at the last minute, averting the previously announced two-day strike.

And in the talks between the head of Lufthansa and its largest shareholder, this outcome may well have given a positive outlook for the future, despite the discussions about personnel and higher costs.

On the other hand, Uniper is deeper in the crisis than previously assumed. The federal government has already decided to take a stake in Uniper, as it once did in Lufthansa and Commerzbank. But until that happens, the company is under so much pressure that it needs new money.

Four billion to help with the seven billion euros in additional expenditure for the replacement of Russian gas, which the boss says will be reached this month. The example of Uniper impressively shows how expensive the energy crisis will be not only for millions of households, but also how much financial support will be needed to save entire industries from collapse.

The stock market will also fluctuate in the coming week between long-term optimism and the short-term negative factors of the energy crisis and recession. From a technical point of view, however, the now almost comfortable jump of the DAX above 13,000 points offers the potential for further gains, despite the seasonally weakest stock market months of September and October.

DAX – Current Supports and Resistances

Supports: 12,900/12,850 + 12,700/12,650 + 12,400/12,350

Resistances: 13,150/13,200 + 13,350/13,400 + 13,550/13,600

This article is from RoboMarkets.