Weekly Outlook: 'DAX is expected to remain in consolidation mode for the time being': Insights from German analysts.

The all-time high of the DAX was pushed down due to profit-taking selling. However, the new week has started, and the situation is once again turning bullish. Therefore, the charts are currently showing a blue signal. This week marks the beginning of the reporting season in the USA.

October 7, 2024 Frankfurt (Frankfurt Stock Exchange)

'The record market sentiment in the stock market has evaporated for the time being,' as stated in the current weekly outlook by Helaba. It mentions that the Middle Eastern conflict is strengthening risk-averse movements in the financial markets. Following the all-time high of 19,492 points recorded at the end of the previous week, the DAX saw moments below 19,000 points in recent days. Due to Friday's rebound, the weekly loss eventually narrowed to 1.8%. With a closing at 19,120 points, the German blue-chip index started trading this morning at 19,150 points.

Following strong data on the American labor market announced on Friday, the major stock indices in the USA surged. According to the analysts at Commerzbank, 'This result will alleviate concerns that the US economy is facing a recession.' The reaction to this data clearly indicates that the current focus is on economic outlook rather than interest rate policies. NordLB points out that the labor market data 'contradicts the very aggressive further rate cuts by the FRB.' A few weeks ago, this would likely have led to a decline in stock prices.

In Germany, the main issue is the crisis in the automobile industry. According to Hera, the timing of the EU tariffs on Chinese manufactured electric cars decided on Friday is 'unfortunate' for the already struggling industry. Analysts are evaluating based on the fact that German manufacturers producing in China will also be affected. Furthermore, the latest sentiment indicators like the ifo business climate index do not suggest an imminent improvement, indicating that 'difficult times for the DAX are unlikely to be over yet'.

As the final quarter of the year begins, corporate performance will be in focus again over the next few weeks. In the USA, Pepsi's earnings will be announced on Tuesday. In the banking sector, Wells Fargo and JP Morgan will report their earnings at the beginning of the week. Expectations differ significantly beforehand. LBBW analysts view performance expectations for top US companies as 'quite ambitious', while Deka anticipates that companies may 'clearly exceed expectations' due to divergence between the recent increase in third-quarter growth rate forecasts and analysts' earnings estimates declining significantly at the same time.

However, considering record index levels and upcoming US elections, Deka's forecast suggests that stock price reactions may still be quite restrained. LBBW also points out the seasonal peculiarity that October in years with US presidential elections often shows a weak aspect. 'Relevant uncertainties have become a burden on stock price outlooks'. This is evident when looking at the fourth-quarter balance sheets of these years, which despite the typical year-end rally, are significantly weaker compared to non-election years (7.1% increase), with the average increase of the S&P500 being only 2.8%.

Jörg Scherer of HSBC noted in this morning's DAX analysis that Germany's leading stock index entered October with a red weekly candlestick similar to the past two months. However, this is not surprising after hitting record highs, and so far appears to be a typical 'breather'. Technical analysts believe there is an opportunity for a 'price breakout above 20,000 points' as long as the 'horizontal support around 19,000 points' is not significantly breached. However, this would require the current consolidation pattern to break upwards.

October 7th (Monday

At 10:30 AM Eurzone: Sentix economic indicators. According to Deca, "Negative news in the automobile industry and downward revision of economic forecasts" appears to be affecting the mood of financial market analysts: Therefore, economists expect the Sentix economic index for October to further decline to -16.

October 8th (Tuesday

8:00 AM: Germany: Industrial production. After an unexpected sharp decline in July, manufacturing production for August is expected to see a "restrained recoil decrease" (+0.4%), with a high possibility of early factory closures in the automobile industry having a significant impact.

October 9th (Wednesday

8:00 PM American: Previous FOMC Minutes Commerzbank analysts are particularly focused on whether the FOMC will implement another rate cut of the same size as the 50-basis-point cut at the beginning of November in their upcoming report.

October 10th (Thursday

2:30 PM American: Consumer prices Deutsche Bank considers this week's data release as the most important, with U.S. economists expecting a slowdown in the medium-term inflation rate, with the overall index forecasted to be+0.05% compared to August's +0.2%, and the core index to be +0.24% (+0.3%).

October 11th (Friday

At 4 PM, USA: Consumer Sentiment According to Deka, the University of Michigan's Consumer Sentiment Index should be supported by the low interest rate environment. Economists are expecting 72.0, but the consensus remains at 70.0.