DAX Declines, Fears of Economic Contraction Increase

Posted on October 10, 2024 by Gino Bruno D'Alessio

The Unpopular Sholtz government slashes GDP growth forecasts the same day Deutsche Telekom announces share buyback.

The German government following the statement made yesterday by the Economy Ministry, has reduced its GDP forecast for 2024 to -0.3% from +0.2%. The announcement comes amid concerns about demand for German goods from China and global contraction.

The effects of the recent Fed rate cut, and the even more recent China stimulus package have both faded. Volkswagen recently announced the closure of two plants in Germany. And Intel put an important project in Germany on hold.

Some good news today comes from the largest German cell phone provider, Deutsche Telekom. The company announced that it will pursue a share buyback program worth €2 billion for 2025. Telekom announced it expected the group to increase net revenue by 4% a year through 2027.

The company’s management also plans to increase its dividends payout for this year to €0.90. At the same time, the dividend corridor will remain between 40% and 60% of adjusted earnings per share.

Deutsche Telekom shares are up 1.2% on the day, while the [[DAX]] is down 0.42% following a broad retracement in global stocks. In contrast, the Shanghai index is up 1.46% as it recovers from the recent selloff.

Technical View

The day chart above for the DAX shows a market that is still technically in a bullish trend. The market is above the Ichimoku cloud, and the lagging lines are above the cloud and indicating bullish momentum.

A cause for concern of the strength of the bullish trend comes from the RSI. The indicator dipped below its MA 6 sessions ago, which is a sign of momentum weakness. The second suggestion of weakness comes from the fact that in the last two rallies the RSI failed to break above the level of 70.

The market will find support immediately at 19,057 (red line) and if that breaks, further down at 18,785 (blue line). To the upside, the market will find major resistance at the all-time high of 19,501.

[[DAX-graph]]

Forex Signals Brief October 10: USD CPI Risks to the Upside

Posted on October 10, 2024October 9, 2024 by Skerdian Meta

Yesterday, the Reserve Bank of New Zealand (RBNZ) reduced its Official Cash Rate (OCR) by 50 basis points to 4.75% from 5.25%. This move led to a one-cent decline in the New Zealand dollar (NZD), which was further affected by the broader risk-off sentiment in currency markets. Despite this, both U.S. and European stock markets enjoyed strong performances. The RBNZ’s decision comes in response to the highest unemployment rate in three years, core inflation staying within its target range, and continuing weakness in high-frequency economic indicators.

Continue reading “Forex Signals Brief October 10: USD CPI Risks to the Upside” →

US Department of Justice wants to break up Google

Posted on October 10, 2024 by Olumide Adesina

The US Department of Justice hinted that it may recommend splitting Google into smaller parts, separating the search engine giant from Chrome, Android, and the Google Play app store.

This will prevent Google from using its products, such as Chrome, Play, and Android, to give itself an advantage over rivals or new entrants in Google search and Google search-related products and features, including emerging search access points and features, such as artificial intelligence, according to the government’s court filing.

The Justice Department has suggested modifications in response to a federal judge’s August decision finding that Google had violated US antitrust law with its search business. The ruling, in which the judge called Google a “monopolist,”

Google’s blog post claimed that the government’s proposed strategy might worsen the user experience, labeling it “radical.” According to Google, it might “break” Chrome and Android, impede AI advancement, and compel the business to divulge customer data to rivals, jeopardizing privacy.

The firm stated on its blog that “this case is about a set of search distribution contracts.” “The government appears to be pursuing a broad agenda that will impact numerous industries and products, with significant unintended consequences for consumers, businesses, and American competitiveness,” the statement reads. “Rather than focusing on that.”

In the case, the US government contended that Google had shut out competitors in search by using a variety of interlocking strategies and products under its control, giving customers limited options and a less inventive ecosystem

The case focused on Google’s billion-dollar exclusive agreements with other tech firms, such as Apple, to become the default search engine on mobile devices and web browsers. Amit Mehta, a US District Judge, declared those agreements anticompetitive.

Having established that Google violated the law, the next phase of the litigation will involve determining the fines the business will pay for its misconduct. The matter is still in its early phase, and Google has promised to challenge Mehta’s initial ruling. The entire procedure, including the appeal, may take several months or even years to complete.

New Record High Just Below 5,800 for S&P 500 As Stocks Surge

Posted on October 9, 2024 by Skerdian Meta

Today the S&P 500 index reached another all time high, after consolidating above support during this month. The S&P 500, after bouncing within a tight range yesterday and earlier today, has broken higher, carrying forward the bullish momentum fueled by easing tensions in the Middle East. This resurgence has revived risk appetite in the stock market.

Continue reading “New Record High Just Below 5,800 for S&P 500 As Stocks Surge” →

ECB Likely to Cut Rates – China Rally Falters

Posted on October 9, 2024October 9, 2024 by Gino Bruno D'Alessio

ECB policymaker Villeroy told a French radio station the ECB is likely to cut rates next week, and probably not the last one of the cycle.

Villeroy is head of the French central bank, in a radio interview stated, “A cut is very likely, and it will not be the last one, the rhythm depending on how the fight against inflation evolves.” Adding that weak economic growth justified the decision.

Markets have already priced in the next rate cut and adding bets to another rate cut in December. However, sentiments that the cuts will come in time to create a soft landing are dwindling.

The [[DAX]] is down 0.25% on the day and [[CAC]] is down 0.16%. Eurozone GDP Growth has progressively weakened since Q1 2022. In particular German GDP annual growth has turned negative in Q3 2023.

The latest forecasts are for a contraction in Europe’s largest economy for 2024. While France and Italy are showing signs of moderate economic expansion, industrial woes in the auto industry are raising concerns.

[[DAX-graph]]

China Rally Deflates

The China stimulus package announced last Wednesday September 25, gave stock markets renewed hope. Economic recovery in China, currently Germany’s second largest trading partner, was seen as way to increase exports.

One of the sectors worst hit from China’s flagging demand has been the autos. With Volkswagen announcing the closure of 2 plants in Germany and BMW and Mercedes cutting profit forecasts. The stimulus news gave the markets some reprise, but it has been short lived.

The rally in the Shanghai index, which took the market to a new all-time high, has now seen the index lose over 10% yesterday and another 7.6% so far today.

Forex Signals Brief October 9: RBNZ Rate Cut and FOMC Minutes

Posted on October 9, 2024October 9, 2024 by Skerdian Meta

Yesterday the economic data was light again, so markets traded the sentiment mostly, which turned positive on news of a possible truce between Israel, Lebanon and Iran. Stock markets rebounded after the decline on Monday, with the S&P 500 closing the day near record highs once again, while commodity dollars continued to retrace higher. Continue reading “Forex Signals Brief October 9: RBNZ Rate Cut and FOMC Minutes” →

S&P 500 Closes Near Record Levels As Risk Sentiment Improves

Posted on October 8, 2024 by Skerdian Meta

S&P 500 has been bouncing in a tight range and today we saw another bounce as stock indices recovered from yesterday’s decline. The SPX index broke above the resistance in September, establishing a new high, which as turned into support now, which signals further upside momentum.

Continue reading “S&P 500 Closes Near Record Levels As Risk Sentiment Improves” →

DAX: German Economy Ministry Cuts GDP Forecast to -0.2% for 2024

Posted on October 8, 2024 by Gino Bruno D'Alessio

The DAX lost 0.92% on Monday as the market loses momentum gained from Fed rate cut and China stimulus.

German Minister of Finance, Christian Lindner, told journalists before a Eurogroup meeting that “We can’t be satisfied with the economic developments in Germany”. Adding that Germany’s economy had lost competitiveness over the past decade.

Earlier yesterday, the ministry of economics slashed the GDP forecast for 2024 to -0.2% from +0.3%. If the estimate is correct it would mark a second consecutive year of economic contraction in Europe’s largest economy.

The [[DAX]] lost 0.92% yesterday and is down 0.33% so far this morning in mixed trading. The poor performance is despite of today’s Industrial Production. Figures today showed a better-than-expected expansion of 2.9%, analysts’ forecasts were for an increase of 0.8%.

The good news that China released a stimulus package on Wednesday 25, has since faded as the market becomes skeptical of the performance of the German economy overall. The DAX had rallied to new all-time highs on the next day and Friday.

Over the two days following the announcement of the stimulus package the index rallied a combined 2.63%. Since its ATH of Friday, the index has lost 2.16%, which is also in line with major Eurozone indices.

Technical View

The day chart above shows the DAX in a major bull trend that has retraced from its recent ATH of 19,501 on Friday 27. Despite the technical view of a bull market, with prices well above the Ichimoku cloud, there are signs of weakness.

The indication of weakness comes from the RSI, which has failed to break above the level of 70 on the past 3 major rallies. The failure to break above 70 signals a weak rally that hasn’t managed to gain major momentum.

Today’s candle found support, so far, on the previous high of 18,913 (yellow line). Should that level break, the market will find support at 18,785 (blue line), and further down at 18,601 (black line).

To consider the bull trend as intact, we would need to see a close above the current ATH of 19,501. The most immediate resistance is at 19,057 (red line), which corresponds to a previous ATH.

[[DAX-graph]]

S&P 500 Closes Down as Stocks Retreat, but Stays Above Support

Posted on October 7, 2024 by Skerdian Meta

The easing of monetary policy by central banks previously supported a stock market rally, with the S&P 500 often reaching record highs. However, no new highs have been reached in the last two weeks, and yesterday, the S&P 500 closed lower. Major US indices, led by the Dow Industrial Average with a 1% drop, have struggled, with the S&P 500 following with a 0.8% decline.

US Stocks Retreat Amid Broader Negative Risk Sentiment

Continue reading “S&P 500 Closes Down as Stocks Retreat, but Stays Above Support” →

UK Job Growth Slowest in 3 Years – P.M. Starmer’s Chief of Staff Resigns

Posted on October 7, 2024 by Gino Bruno D'Alessio

UK stocks open the week on political uncertainty as the prime minister reshuffles his cabinet less than 100 days into office.

The [[FTSE]] is trading down 0.55% on the day as the market is hung between the political woes of the Labour party, a likely unpopular budget, and a cooling economy. The Budget will be announced on October 30, when investors are expecting it to include tax hikes.

At the same time, Keir Starmer is facing backlash for accepting expensive gifts, while eliminating the winter fuel allowance for the elderly. A series of events which has already led to one Labour party member’s resignation.

Media reports speculate that the political turmoil has also forced the Chief of Staff, Sue Gray, to resign. The rumors suppose tensions within Starmer’s team of advisors that has hindered the new government’s policies since election day.

Gray has also been the subject of leaks to the media about her pay, and some anonymous officials have blamed her for Starmer’s difficult start in office. The prime minister’s office has named Morgan McSweeney as Gray’s replacement, who’s previous role was chief advisor.

[[FTSE-graph]]

Slower Pay Growth

According to a survey conducted by the Recruitment and Employment Confederation and KPMG, pay growth for starting pay grew by its lowest since February 2021. Its monthly permanent job placements index extended the ongoing 2-year downturn.

The survey also underlined that the number of available candidates continued to expand, while the number of open vacancies fell again. The result makes 11 consecutive months of declines, which is the fastest pace since March.

The weak data on pay growth may reassure the BoE on receding price pressures that higher salaries can place. Analysts are becoming more bullish on another rate cut by the central bank at its next meeting on November 7.

However, just last Friday the BoE’s Chief Economist, Huw Pill, made a statement of caution regarding interest rate cuts, saying he preferred a more gradual approach.