23.03.2020 – Daily Report. The gigantic US aid package has been delayed. And the Federal Reserve is spreading panic – unemployment in America could rise to 30 percent. In China, a real estate collapse is looming. The investors in Frankfurt are taking cover.
Big minus in Frankfurt
At the beginning of the week, the German leading index once again rushed down: The DAX recently lost 3 percent to 8,665 points, the low was 8,531 points. What volatility: on Friday it had still climbed to 9,201 points.
The Boerse.ARD.de team in Frankfurt gave long investors some hope: last Monday’s crash low of 8,256 points had at least withstood the first onslaught of bears. Another tip for fans of chart analysis: investors should now keep an eye on the 8,256 point mark, as long as the DAX stays above it, it still has chances for stabilization and a turnaround to the upside. Above all, however, the support should remain at around 8,100 points – resulting from the high of the dotcom bubble in 2000 and the pre-financial crisis high in 2007.
Russian Roulette in the Senate
US futures had exerted pressure on German prices, which recently were still down by around 2 percent. During the night, the contract had been traded on the Dow Jones Limit-Down. The reason: In the USA, negotiations on an economic stimulus package worth more than 1 trillion dollars have stalled. The Democrats in the US Senate blocked a Corona package created by Republicans in the lead.
The vote in the Senate was 47 to 47, a Go would have required 60 votes. Meanwhile, Republican Mitt Romney from Utah tested positive for Corona, several others withdrew into quarantine. For the Democrats, the package was too much tailored to the needs of Wall Street, but not to Main Street – although the draft provides for helicopter money for all Americans. Majority leader Mitch McConnell accused the Dems of playing Russian Roulette with the market. Today at 12 o’clock local time, there will be another vote in Congress.
President Donald Trump was unimpressed by the delay: “Our stimulus package will go through. And it will be an enormous package,” he said in the White House. After a passage in the Senate, the Democrat-controlled House of Representatives will also have to approve the package. Expect the Dems to bitch again to make their mark.
Impending job apocalypse in the USA
Yesterday, a leading member of the Federal Reserve, of all people, had poured petrol into the fire. James Bullard, head of the St. Louis Federal Reserve, told Bloomberg News on Sunday that the US unemployment rate could rise to 30 percent in the coming months. He expects an unprecedented 50 percent drop in the US gross domestic product. Bullard said, “This is a planned, organized partial shutdown of the U.S. economy in the second quarter.”
Mixed trend in Asia
The major stock exchanges in Asia are developing unevenly. For example, the CSI-300 slipped 3.4 percent to 3,530 points in the morning. In Japan, the Nikkei-225 rose by 2 percent to 16,888 points. However, this means that it only made up part of the gains of the other indices on Friday. Because there the stock exchange in Japan was closed.
China’s real estate market collapses
Unfortunately we have another piece of bad news from China for you, which has not yet made its way into the mainstream media: Corona is now plunging the real estate market in China into the abyss. China Evergrande – the second largest Chinese real estate developer – loosely cut its full-year forecast in half. The stock traded in Hong Kong rushed down by 17 percent.
You will recall that we had repeatedly pointed out the gigantic vacancy rate in the People’s Republic. Beijing wants people from the province to settle in the cities in order to gain farmland; many municipalities have granted cheap loans, developers have entered the market to build gigantic prefabricated housing estates. Most of them are empty. If anyone has bought, it is mainly the middle class, to hedge against inflation. According to Xinhua, three-quarters of the assets of Chinese households are invested in real estate, compared with only 28 percent in the USA. This bubble is currently bursting. With devastating consequences for the Chinese stock market and labor market – as well as for the demand for steel, copper and cement.
Severe losses in New York
On Friday, the US indices had closed at their daily low. The Dow Jones lost 4.6 percent and closed at 19,174 points – its lowest level since November 2016. The weekly minus: more than 17 percent and at the same time the highest weekly loss since 2008. The market-wide S&P 500 closed 4.3 percent lower at 2,305 points. Here the weekly yield was minus 15 percent, the worst loss since 2008, and the Nasdaq 100 lost 4 percent to 6,994 points. By the way, according to CNBC, Ronin Capital, a large hedge fund, collapsed on Friday.
What the day brings
The diary on Monday only contains a few interesting events, as always you will find the overview here: Market Mover
Only the second vote in the Senate and perhaps even in the House of Representatives on the gigantic economic stimulus package will be important.
The Bernstein-Bank wishes successful trades!
Important Notes on This Publication:
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.