Weekly outlook “We need a high level of positive surprise: a German perspective

The European Central Bank (ECB) board meeting will be held on Thursday, and investors' interest this week is clearly in the earnings reporting season that has just begun. Analysts don't anticipate a new upturn in the market.

2024/7/15 Frankfurt (stock exchange). There seems to be no further change in major interest rates in the Eurozone for the time being. “After lowering deposit interest rates from 4.00% to 3.75% in June, the central bank will not cut the key interest rate again in July,” Commerzbank analysts write, which is completely consistent with the general trend of opinion. Opinions against the next rate cut include the fact that the core inflation rate is still quite high and that wages continue to rise in the Eurozone.

Meanwhile, in the US, last week's inflation data evoked new observations of interest rate cuts, bringing a bright mood to the stock market. All major stock indices hit all-time highs throughout the week. The DAX closed at 18,748 points on Friday, achieving a 1.5 percent weekly gain. On Monday morning, the German stock index fell about 60 points in response to China's weak economic indicators.

Traditionally in the US, quarterly financial results of major banks were announced last weekend, and the financial results announcement season began. Despite generally good results, all industry participants were hit by a decline in stock prices. warning sign? In any case, Hellaba analysts are convinced that “in order to justify the high evaluation of the S&P 500, a high level of positive surprise will be needed over the next few weeks, at least visually.” According to Commerzbank's calculations, companies are expected to report a 7% increase in profit, and major US technology stocks will once again dominate the reporting season with gains of 20% or more.

According to the LBBW survey, in most cases, numbers that exceed expectations are announced in the US, and this is also because predictions are regularly revised downward for the announcement season. This strategy is based on proactive expectation management. By intentionally lowering the hurdles, it becomes easier to jump over after that.” Current example: The quarterly profit forecast for the S&P 500 stock price index for the past quarter is currently at 50.55 points compared to 53.41 points at the beginning of the year and 52.88 points at the beginning of April.

Regardless of whether or not blue-chip US stocks exceed reduction forecasts this time (they did not exceed the past 3 quarters), analysts see that there is a high possibility that the momentum of performance will “continue to shrink.” Therefore, investors are asking “uneasy questions” about how much decline in growth rate can be tolerated without imposing penalties on stocks affected by this.

LBBW also sees a growing risk that the rise in tech stocks will at least temporarily stagnate, fearing that the first quarter figures may end disappointing. Also, my colleague at Commerzbank is concerned that it is unlikely that stock prices will rise rapidly even if figures that greatly exceed expectations come out. They point out that “investors have already taken very optimistic positions and that the value of US stocks is quite high.”

Famous US companies that will reach financial results this week include Goldman Sachs, Bank of America, Morgan Stanley, Johnson & Johnson, Netflix, American Express, etc. In Europe, Nordea, Richemont, ASML, Rio Tinto, Nokia, BHP Group, Anglo American, Burberry, etc. will announce financial results. As for the DAX index, the financial results announcement season will begin on Friday with Sartorius.

From a technical point of view, the stock market light is still green. Charting technician Marcel Moosler is particularly pleased with the performance of the German stock index last week. “The DAX has now begun its summer swing and continues on a clear path,” the experienced technical analyst wrote in a weekly outlook. Following the fact that it surpassed the mid-term high of 18,567 points in April dynamically and with sufficient persistence, he believes that updating the all-time high of 18,893 points or more is “just a minimum obligation.” The upper limit of the new uptrend channel (currently 19,240 points) that appeared on the weekly chart is a “possibility of freestyle,” and it is said that it could be a price target. However, from the perspective of bulls, it should no longer fall below the lower limit of this channel (currently 18,050 points).

Monday, July 15

11:00 a.m. Eurozone industrial production. Economists expect the May figures to show an average decrease of 1.0% compared to the previous month (minus 3.7% compared to the same month last year). LBBW is even more pessimistic and anticipates a 2.0% decline.

7/16 (Tue)

11:00 a.m. German ZEW Index. Expectations for the German economy remain weak. There is no hope in both the economic environment and the political environment. Therefore, according to consensus, the ZEW index is expected to drop from 47.5 to 42.8 points. Helaba is expected to stay at 41.0 points.

2:30 p.m.: America: Retail Sales. Commerzbank analysts expect a 0.4% decrease from the previous month. There seems to be a growing discussion that the US economy may have fallen into a slowdown in growth.

7/17 (Wed)

8:00 p.m. US: Federal Reserve Beige Book unveiled. Market participants expect that the economic report announced by the US Federal Reserve (Fed) will be a clue to determine the timing of the US interest rate hike transition. Currently, the first rate cut is expected in September.

7/18 (Thursday)

2:15 p.m.: Eurozone: ECB interest rate hike decision. There have already been concrete movements in the Eurozone regarding key interest rates this week. However, according to economists, no further adjustments will be made at the next ECB board meeting. The ECB explained the inflation outlook with caution and optimism, and since it classifies the current monetary policy as restrictive, there is a high possibility that it will suggest further interest rate cuts, but Deka stated that it will not promise a specific path this time either.

July 19 (Friday)

8:00 a.m.: German producer prices. Similar to May, there is a high possibility that the producer price level in Germany in June will remain flat from the previous month or only rise moderately (0.1 to 0.2%).