Weekly outlook: France's “left wing is not right wing” and concerns about US performance German analysts' point of view

2024/7/8 Frankfurt (stock exchange).

The leaning to the right, which was feared in the French election, was not realized, but political issues remain. The focus of the stock market is shifting to corporate performance. On the chart, traffic lights are blue.

The results of France's runoff vote somewhat perplexed the stock market at the beginning of the week. The crash that was feared when the right-wing National Assembly (RN) occupied an absolute majority did not occur, but there was no great sense of happiness in response to the victory of the left-wing coalition and the threat of political instability. DAX is valued at around 18,470 points in pre-market transactions. The index, which represents Germany, ended last week at 18,475 points after rising 1.3%. In the US, the S&P 500 Index has risen 2.0% and is maintaining an upward trend.

According to LBBW, the “macro highlight of the week” for the next few days is American consumer prices scheduled for Thursday. According to economists, there is a high possibility that the inflation rate will fall for the third time in a row due to falling gasoline prices. Therefore, there is a possibility that interest rate cuts in the near future by the Fed will increase. This is because recent US economic data was quite sluggish, and expectations to respond to it were already growing. According to Commerzbank, this was exactly one of the reasons for the rise in stock prices. However, analysts were quick to warn: “The longer the series of economic disappointments continues, the worse the company's earnings outlook will deteriorate. This suggests consolidation.”

The editor of “Wellenreiter Invest” also points out that the US low-cost economic model GDPNow currently predicts a growth rate of only 1.5% for the second quarter. Until just a few weeks ago, it was 3%. The second quarter reporting season, which begins Thursday, will provide initial insight into the firm's specific outlook. Traditionally, the big banks are initially in the spotlight, and then it becomes clear whether the big tech companies can once again meet very high expectations.

According to Wellenreiter Invest, recent developments in Bitcoin, which often function as leading indicators, may prove problematic. Last week, Bitcoin, the world's largest cryptocurrency, broke through the 55,000 US dollar mark for the first time since February. Over the past month, Bitcoin has lost almost a quarter of its value. As a result, adjustments in the US stock market are also more likely to occur. However, from a seasonal perspective, July was an above average month before August and September showed statistically weak developments.

DZ Bank analysts believe that since the first half of this year was generally strong, there is a possibility that the stock market will rise further. This is particularly true in Europe, where DAX is expected to rise “to around 19,500 points” by the end of the year. From current levels, this is an increase of 1,000 points, or 5%. Experts expect it to break through the 20,000 point mark by the end of the year.

Chart technicians are also raising expectations for price increases. HSBC's Jörg Scherer says, “DAX's procyclical investment buying signal has once again surfaced a record high of 18,893 points.” The decisive factor is that it has crossed an “important barrier” from the recent adjustment trend and the 50-day line. As a result, the break for the past 2 months can be interpreted as a consolidation flag confirming (an upward trend). Assuming that DAX does not return to the revised flag, it is also possible to target the stock price around 19,200 points.

Monday, July 8

10:30 a.m. Eurozone: “Expectations for the economy are sloping,” according to the weekly preview of the Centix Economic Index Deca. The company's strategists are concerned that the index will fall from plus 0.3 to minus 1.9 points. This is well below the consensus minus 0.3 points.

7/09 (Tue

4:00 p.m. America: Jerome Powell Senate Banking Committee Hearing

7/10 (Wed)

8:30 p.m. US: Speeches by several Federal Reserve (Fed) members

7/11 (Thu.

2:30 p.m. America: Consumer Prices For consumer prices, which is probably the most important economic indicator for the stock market this week, Commerzbank expects the core rate to remain at 3.4%. The overall inflation rate is expected to fall from 3.3% to 3.1%. From the standpoint of the Federal Reserve, analysts believe this will “somewhat increase the certainty that the inflation rate will continue to fall to 2% of the target.”

July 12 (Friday)

2:30 p.m. America: Producer Prices. Economists expect a slight increase of 0.1% for both the overall and core.

4:00 p.m. America: Consumer Confidence Index. Following the previous University of Michigan Consumer Confidence Index of 68.2 points, 67.0 points are expected.