2023/01/23 (154.017) Technical Analysis

After A More As Perfect Start Into This Year 2023
And A Plus Of Over 1000 Points In The First Three Trading Weeks,
It`s Only A Matter Of Time Before The DAX Slows Down To Breath Again

After the US monetary authorities raised the key interest rate a total of seven times in the fight against high inflation in 2022, the US markets are now fearing a recession. Experts disagree as to whether such an economic downturn is actually imminent. However, star investor Michael Burry’s forecast is bleak.

One who is absolutely certain that the US is 100 percent in for a recession is Wall Street oracle Michael Burry. The investment pro gained notoriety when he correctly predicted the bursting of the real estate bubble in 2008, made big bets against the real estate sector and made a fortune from it. His success was finally filmed in the Hollywood film “The Big Short”. Since then, Burry has repeatedly attracted attention on the market with rather pessimistic forecasts and calls himself “Cassandra B.C.” on his Twitter profile. The investment professional tweeted his first forecast for 2023 on Jan. 2, predicting that the US would be in recession no matter what. Burry came to this conclusion based on recent US inflation data (CPI). In November 2022, annual inflation had fallen to more than 7.1 percent for the fifth straight month, the lowest since December 2021, leading Burry to conclude inflation had peaked. In his opinion, however, the decline is only temporary. He assumes that the CPI data could even be negative in the second half of 2023, which should, however, result in an easing of monetary policy by the Fed and support measures by the government. As a result, however, inflation would rise again, which would create a vicious circle.

Bank of America: Recession Can Still Be Avoided

However, not all investment professionals are so convinced that the US is headed for a recession. According to Bank of America economist Michael Gapen, things can still be turned around, as he said on CBS’s Face The Nation: “It’s not certain yet. We might be able to prevent it […]”. Nevertheless, the stock market expert agrees that 2023 will certainly be a difficult year for many people. It remains to be seen whether there will actually be an economic downturn in 2023.

Monetary Policy Remains On The Brakes

Even if all the data, such as the producer prices from Germany on Friday morning, signal an easing in inflation, monetary policy will not be swayed from its restrictive course. ECB President Lagarde said at the Davos Economic Forum that she would stick to the two percent target for inflation and do everything necessary to achieve it again. The 50 basis point interest rate hike at the beginning of February should therefore not have been the last for this year. And in the US Federal Reserve, too, there are stubborn advocates that key interest rates must rise above the five percent mark in order to get inflation under control again. The market just doesn’t really want to believe it, with a view to the US bond market and the inverse interest rate structures, the hope of interest rate cuts in the USA this year is just as stubborn. Everything will depend on how much and how quickly the economy weakens in the coming months.

IMF Sees World Economy Slipping Into Recession

Recession fears are currently determining sentiment on the stock exchanges. These were recently fueled by the International Monetary Fund, which recently issued a warning that a third of the global economy could slip into recession by 2023. According to the IMF, the main reason for this is the war in Ukraine, which has led to a sharp rise in prices and the associated lower purchasing power of consumers. “The worst is yet to come and for many people, 2023 will also feel like a recession,” Deutsche Welle quoted IMF economist Pierre-Olivier Gourinchas as saying. The fund reduced its estimate for 2023 and is now only assuming growth in the global economy of 2.7 percent, which is quite poor compared to 2021 with growth of 6.0 percent.

There is also a growing belief among economic experts that a recession could be imminent in 2023. A Bloomberg survey from December 2022 shows that 70 percent of the economic experts surveyed predict a recession for this year. In November it was still 65 percent.

US Federal Reserve Monetary Policy Crucial

The belief that a recession may be imminent is closely linked to the US Federal Reserve’s monetary policy. In 2022, interest rates turned around and finally left their ultra-loose path. In the last year, for example, the monetary watchdogs turned the interest rate screw seven times in order to push back the escalating inflation towards the announced 2 percent target. The concern now is that the Fed’s restrictive monetary policy will stall the economy so much that an economic downturn will occur.Goldman Sachs investment expert Maria Vassalou expects the US Federal Reserve to keep the reins tight for a while longer: “We expect the Fed to maintain its restrictive monetary policy for a while longer as long as the impact on real GDP and unemployment not become very strong and inflation has not fallen significantly towards the target level,” TheStreet quotes the banker as saying.

A Shirt Review And/Or Brief Classification

After a perfect start to the year and a plus of over 1,200 points in just two trading weeks, it was only a matter of time before the German share index had to run out of air. In the past week, as expected, the 15,200 mark proved to be a stubborn resistance, while Wall Street, which was still not gaining momentum after weak economic data in the middle of the week, did the rest. Weaker figures for US industrial production, weaker retail sales and a much weaker than expected increase in producer prices in December were the cocktail that invited the recession specter onto the floor to end the stock market party of 2023 for the time being. After the annual high in 2022 (16,274), the DAX was no longer able to defend the price range above 16,000 points. The support zone around 15,000 points was also given up after multiple tests. As part of a downward trend structure, the price reached its low for the year 2022 at 11,829 points in October. From there, the DAX future has staged an impressive year-end recovery that has taken it above the SMA200. Supported by the GD50, another bounce set in early in 2023, allowing the price to regain the 15,000 point mark. A new interim high of 15,332 points was reached last week, from which the round mark came under pressure again, but was held in the end. The outlook remains positive above the moving averages. With quotes above the support in the area of 14,700 points, the way remains clear towards the 16,000 mark as the next target. The main support for the recovery scenario to a new record high remains around 14,000 points.