03.02.2020 – Daily Report. The bulls on the German stock exchange dared to make a small stabilization at the beginning of the week. In contrast, shares on the Chinese mainland rushed south by about 8 percent. Wall Street had also corrected on Friday. As before, the corona virus continues to dominate events.
Frankfurt rehearses the recovery
Regardless of the negative trend in global trading, the DAX recorded a slight gain on Monday lunchtime and the index worked its way up to 13,050. Most recently, the leading index was still in the profit zone at 0.2 percent with 13,004 points. There was a little tailwind again from the USA: Futures on the Dow Jones and S&P 500 climbed by around 0.3 percent.
The DAX rushes through the safety net
On Friday, the DAX had fallen like a stone through the 50-day line with a weekly loss of 4.4 percent; now it could head for the 100-day line, which is at 12,525. Or is this a bear trap and the index jumps back up? Given the exponential wave of disease and death in the corona, we can expect more rather than less bad news in the coming days. Who knows – maybe the breakthrough will come with a quickly available vaccine.
Corona is unstoppable
However, more people have now died in the People’s Republic from the novel corona virus than during the Sars pandemic 17 years ago. On Monday, the Health Commission in Beijing reported the largest increase in infections and deaths in a single day to date. According to the report, 57 people died of the lung disease again. This means that 361 people have died in the meantime. The number of reported cases shot up dramatically over the weekend – by about 2,800 to over 17,205 cases.
Depth rush in China
As expected, the Chinese CSI-300 caught up with the losses of the other stock markets after the stock market reopened. The index thus plunged by 7.9 percent to 3,688 points. The Shanghai Composite slipped by 7.7 percent to 2,747 on the worst trading day since 2015. The Chinese mainland stock exchanges reopened on Monday for the first time after the Chinese New Year holidays, which had been extended due to Corona. The Nikkei in Tokyo closed on Monday with a minus of 1 percent at 22,972 points.
Beijing pumps money into the system
Meanwhile, the Chinese leadership wants to strengthen the financial market with fresh money. On Monday the central bank provided the commercial banks with 1.2 trillion yuan, or around 156 billion euros, in liquidity via repo transactions. This should prevent the money market from freezing. The Renminbi continued to weaken and was converted against the dollar for 7.0229 – a minus of 1.6 percent.
Low level flight in the USA
On Friday the US indices had already come under heavy pressure. The Dow Jones Industrial ended the day with a 2.1 percent drop in 28,256 positions. The weekly balance: minus 2.5 percent. The minus in January was 1 percent. The S&P 500 lost 1.8 percent to 3,225 points on Friday. And the Nasdaq 100 was down 1.6 percent to 8,992 points.
Warning signals from the chart analysis
Incidentally, the Dow broke through the 50-day line just like the DAX. The blog “ValueWalk” noted that this breakthrough was the first time in almost four months. The four-year low in Chicago’s Purchasing Manager Index was the main reason. We think that: the next stop 100-day line at 27,023 points. But probably not without some skirmishes to regain the 50-day average.
By the way, the S&P 500 stopped exactly on the 50 line according to the textbook. The tech indexes are still hanging a bit higher. This is hardly surprising, since the network economy is less dependent on economic activity in a quarantined real world than the old economy.
Is this the end of the correction already? Due to the delay in detecting Corona cases, we are skeptical. It is also possible that China will cut the customs deal with the USA – which could lead to a veritable panic on the stock exchange. Meanwhile, we are looking at the copper price as an indicator of economic pessimism: copper has been on a steady decline since mid-January. The price has fallen from around 6,260 to 5,570.
Next stop: Immunity
In Washington last week the US Senate decided as expected by 51 to 49 votes not to call any further witnesses. Only two Reps switched sides. Now the vote on Wednesday on the acquittal of US President Donald Trump is due. In view of the verdict on Friday, the matter could therefore be settled quickly. At least from this side, Wall Street probably has nothing to fear. Meanwhile, the Democratic primary is about to begin in Iowa – with Socialist Bernie Sanders in the lead.
This is what the day brings
The ECB Monthly Bulletin runs at 15.45, interesting if you are trading euros or European government bonds.
At 16.00 the ISM Manufacturing index for January follows from the USA.
At the same time, American construction spending in December runs over the tickers.
The Bernstein-Bank wishes successful trades!
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