2022/10/10 (085) Column

„Both The Bulls And/Or Bears
are biting their teeth
on our German DAX40“


Would you buy/sell our german stock market, the DAX40, my dear lovely readers, if you always only have the monthly german unemployment rate in % at your disposal? And/or always only buy/sell the DAX40 when you only have the monthly german inflation rate at your disposal? Always only buy/sell the DAX40 when you only have the monthly german current account available? Or not? Maybe even buy/sell only once a quarter if GDP annual growth is available to you?

Whatever you (not) decide.
There are still diverging forecasts from investment strategists about the german economy and stock market prospects – i.e. also analysts’ voices about the DAX40 that give long-term encouragement. But ask yourself whether CFD`s on individual stocks from my home country can be the first choice in the current environment. One month some indicators (not) speak for it; while in the following month everything turns into the opposite again. Which leaves a stale, sometimes sometimes bitter aftertaste. This is confirmed by various reactions from the financial world around the globe.

So let’s leave the opinion aside and/or let’s orient ourselves soberly and unpatriotically only to the published figures of some of my colleagues. A new update of data on a historical basis by Frankfurt-based Metzler Asset Management shows how different the yield developments are over the longer term. The strategists regularly publish an update of their estimates of expected earnings for various financial assets at the beginning and middle of the year. It attempts to estimate average nominal returns for stocks & bonds over the next 10 years. Even a small excerpt from the overview of the estimated nominal returns (as a percentage, in euros, taking into account the costs of currency hedging) reveals major differences. Only 2.7% p.a. comes out for equities in the USA, compared to 5.9% for equities in Europe. In the long term, that speaks in favor of placing a focus on Europe in a mixed portfolio. China shares yield an average of 8.5% p.a., shares in the emerging countries measured by the MSCI Emerging Markets even 8.7%. The picture of the bond markets is completely different: German government bonds only up 1.5%, US government bonds up 2.3%. Corporate bonds bring better yields on both sides of the Atlantic with 4.0% to 4.5%. Returns from high-yield bonds and government bonds from emerging countries can be significantly higher. Which is certainly good to know! But in the future, if the opportunity arises, I will still decide to buy individual shares from the DAX40! When? I don’t know (yet)…
DEVISE 2 DAY 48h
– My Last Thoughts About Market Price Actions

This week, the Fed’s FOMC Minutes are overshadowed by the Bank of England, which is to be expected from central banks. Because the British central bank has to clean up politics. The new British Prime Minister is causing chaos on the financial markets with her budgetary policy. Which is jazzed up by most colleagues, in the newspapers (all around the world). Because Biden has been pursuing such a policy with his Democrats for 2 years. But the focus is on her, in London. However, that`s why the Fed is forced to raise interest rates due to high US inflation. But without publicly, openly criticizing US fiscal policy, let alone misguided economic policy – FED Boss Powell is far too polite for that.

Next to the Bank of England this week, all attention this week should be on Thursday’s US inflation numbers. A better-than-expected figure for the Sep`22 should then possibly counteract the bears’ pressure on the stock market. In addition, us producer prices on wednesday as well as us retail sales on friday should not be ignored either. So that we can get a better picture of the us economy over the weekend. UK unemployment rate on Tuesday is equally important. As well as inflation rate and trade balance from China, on Friday.

In OIL_BRENT, CBOT_MINI-YM1! & DXY we currently have open 4XSetUps. And EURUSD, GBPUSD, US10Y, XLF & MSFT we should watch mainly this week to get a feel for the financial market price action mainly. And/Or US Dollar, Euro, British Pound, US Basis Yield – even 10Y, US Bank Stocks, and/or US Techs.
DEVISE 2 DAY 48h
– Some Last News About Market Price Actions

Wall Street Starts Week On Negative Note
US stocks extended losses on Monday, with the Dow Jones falling more than 150 points, the S&P 500 retreating almost 1% and the Nasdaq down nearly 1.5%. The Nasdaq hit its lowest level since September 2020 weighed down by semiconductor stocks including Nvidia and AMD after Washington published a sweeping set of export controls that limit companies selling advanced computing semiconductors and manufacturing equipment to China. Also, investors continue to sell tech stocks that look less valuable in a rising rateenvironment. With the earnings season kicking off, investors will be watching closely for evidence of the impact of inflation and a soaring dollar on margins and consumer demand. Market participants will also await the release of the minutes of the latest Fed policy meeting on Wednesday and inflation data on Thursday for further clues about the Federal Reserve policy-tightening path.

Dollar Strengthens For 4th Day
The dollar index strengthened for a fourth consecutive session to above 113 on Monday, as investors continue to bet the Federal Reserve will press ahead with its aggressive tightening plans. The jobs report last week showed a stronger-than-expected payrolls number, continuing to point to a strong labour market. This week, the US inflation report, FOMC minutes, and appearances from several policymakers this week should continue to reinforce Fed’s commitment to its fight against inflation. Money markets are currently pricing in another 75bps rate hike in the fed dunds rate for Nov`22.

Swiss Franc Weakens Below Parity
The Swiss franc weakened past the parity level with the US dollar in October for the first time since June 15th, quickly approaching the three-year low of 1.004 per USD hit in May as expectations of an aggressively hawkish Federal Reserve strengthened demand for the US dollar. The stronger than expected US jobs report for September erased previous hopes that the worsening macroeconomic backdrop could incentivize the FOMC to ease the pace of monetary tightening. Domestically, investors continued to assess expectations of further tightening by the Swiss National Bank as inflation unexpectedly improved. The latest data pointed to an annual price growth of 3.3% in September, below expectations of 3.5% by markets and 3.4% by the central bank, easing bets that the SNB will continue to hike interest rates as aggressively. The central bank raised its policy rate by 75bps in its last meeting, lifting borrowing costs to positive territory for the 1st time since 2011.

FTSE 100 Extends Downward Trend
London’s main stock extended losses for the fourth consecutive session on Monday, with the benchmark FTSE 100 closing below the 7,000 level, dragged by healthcare and utility stocks. Investors have been growing worried about the implications of tighter financial conditions on the growth momentum and corporate earnings. Meanwhile, the Bank of England is poised to introduce further liquidity measures to ensure financial stability in the UK following a market turmoil triggered by the government’s fiscal policy. Centrica and Haleon were among the biggest laggards on the index, down 2.5% each.

European Stocks Close Muted on Monday
European equity markets closed muted on Monday, with the German DAX finishing almost flat and the benchmark Stoxx 600 losing 0.2%, as gains among materials and industrial stocks offset losses in utilities. Lingering Russia-Ukraine tensions and a worsening outlook for growth and corporateprofits kept investors on edge at the start of the week. Major global central banks, particularly the Federal Reserve and the ECB, will likely continue their aggressive tightening to restore price stability. ECB member and Bank of France’s head Francois Villeroy de Galhau was among the latest policymakers to echo the need to keep raising interest rates to bring inflation back down to the 2% target.

Oil Eases from Multi-Week Highs
The WTI crude benchmark bottomed around the $91-per-barrel mark, easing from an almost six-week peak of $93.55, pressured by lingering worries about weak global economic activity and falling fuel demand. China’s services activity in September contracted for the first time in four months, suggesting that recent coronavirus-induced restrictions continued to hit the world’s second-largest economy and oil consumer. On top of that, a tight US labor market and a firm hawkish stance from US policymakers escalated fears that the Fed would raise borrowing costs to restrictive levels. Putting a floor under prices were worries about tightening supplies. OPEC+ has recently agreed to cut production by 2 million barrels per day or about 2% of global supply from November, which would be the most significant output cut since the start of the pandemic. At the same time, escalating tensions between Russia and Ukraine could lead to further supply disruptions.

Hang Seng Slumps Near 3% at Close
Shares in Hong Kong tumbled 523.39 points or 2.95% to finish at 17,216.7 on Monday, extending losses from the prior two sessions, dragged down by news that the US launched new export controls which include a measure to prevent China from accessing certain semiconductor chips. Traders moved away from riskier assets after a plunge on Wall Street Friday, as solid US jobs data and high CPI forecasts raised expectations about a more rapid tightening path by the Fed. In China, the services sector shrank in September, while some Chinese cities impose fresh lockdowns after daily COVID cases tripled.DEVISE 2 DAY 48h
– Where I Was Wrong, Where I Was Whright

The USD more or less (still) on the upside. Oil prices up nearly 20% last week. And the stock market with an historically high volatility, in which 1.000 points in the Dow Jones Industrial Average Index is no longer a headache price action. When was it even more exciting? When was it even more volatile? However, I could have been writing this for weeks!

For a year now, Nourinel Roubini has argued yet, that the increase in inflation would be persistent, and that its causes include not only bad policies but also negative supply shocks, and that central banks’ attempt to fight it would cause a hard economic landing. „When the recession comes“, he warned, „it will be severe and protracted, with widespread financial distress and debt crises. Notwithstanding their hawkish talk, central bankers, caught in a debt trap, may still wimp out and settle for above-target inflation. Any portfolio of risky equities and less risky fixed-income bonds will lose money on the bonds, owing to higher inflation and inflation expectations.“ In fact, we have had stagflation in the USA since the middle of last year 2021. Because since July 2021, inflation has been higher than GDP in the same month. According to the formula: Inflation Rate (since July 2021) – GDP Annual Growth Rate (of the same Quarter, even since 3Q2021) = Stagflation. And that`s why the US yield curve in Chicago has become more expensive since then, since the FED cannot and does not want to sit idly by and look at it. And that’s just as well. But that’s why it’s also bad for stock markets in New York. Whether it will be a “long, ugly recession and a correction in equities, by around 40%“, as Roubini feared, remains to be seen at this point. Which is why we should keep this fact in the back of our mind. Because it obviosusly hides a positive future economic perspective! No doubt…

Anyway!
The price of oil had not reckoned with such a strong recovery last week. So there is a real danger this week not only of losing our booking profits again, but possibly also closing our short 4XSetUp in the oil price. And/Or wait and see again. With respect to the USD, we pull the ripcord at 110 points on our 4Xsetup. And let’s go long above back again if it’s just a brief pullback. Because we have experienced a huge movement so far. That`s why aour new stop price at 110 points in the DXY, this week. Because as more I think about it, I get cold feet. I don’t know if this is my personal, individual, subjective fear of my own courage!? And/Or may be also veteran experience to take profits in time?!