Markets Update Monday 09/09/2019 – Monetary policy hopes continue to drive the markets

Frankfurt – 09/09/2019

Monetary policy hopes continue to drive the markets

From a fundamental perspective, the hope for a loose interest rate policy in the USA and Europe continues to drive the stock markets.

For the ECB Council meeting on Thursday, market observers firmly expect a further reduction in the penalty rate (currently: minus 0.4 per cent) that banks will have to pay for deposits with the central bank. However, the new series of bond purchases expected by some investors are likely to be difficult. Resistance is growing within the ranks of the central bank.

In the following week, the US Federal Reserve is likely to cut the key interest rate by 0.25 percentage points. According to the CME Group’s Fed Watch Tool, 91 per cent of market participants now expect such a move.

This would not be the first time that the Fed’s monetary policymakers have had to do what the US presidents failed to do. It would be the second rate cut since August. Previously, the Fed had continuously raised key rates in nine steps since December 2015.

With their changed interest rate policy, the monetary authorities are trying to cushion and contain the negative economic impulses from the US trade war with China.

On Friday, the US Labour Market Report for August provided new arguments for both proponents and opponents of further monetary easing.

Outside agriculture, 130,000 jobs were created in the US in August, while experts had expected an average of 160,000. However, wages rose slightly more than expected, which is particularly crucial for the Fed.

In the afternoon, Fed Chairman Jerome Powell stressed at a conference in Switzerland that the Fed was observing several uncertainties, including trade conflicts. The Fed will “react appropriately to maintain growth”.

US Markets at a glance

There weren’t any big jumps on Wall Street by the end of the week. The leading index Dow Jones Industrial closed the last trading day of the week 0.3 per cent higher at 26,797 points.

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The market-wide S&P 500 gained almost 0.1 per cent to 2,979 points. The technology-based Nasdaq 100 fell slightly to 7,853 points.

Far East Markets at a glance

The stock markets in the Far East are recording a majority of profits at the start of the week.

Japan’s leading index, the Nikkei, ultimately gained 0.56 per cent to 21,318.42 points. On the Chinese mainland, the Shanghai Composite is currently recording a premium of 0.66 per cent to 3,019.46 units, while in Hong Kong the Hang Seng is hovering around the zero line with 0.04 per cent at 26,679.67 points.

A positive trend in the Asian markets on Monday is again supported by the hope of early progress in the US-Chinese trade dispute. Also, weaker-than-expected economic data from China is pointing to a small damper. The weak data is due to the trading dispute that has been going on for more than a year.

European Markets at a glance

On the European stock exchanges, Monday trading is slightly up.

The EuroSTOXX 50 showed little movement at the start of trading with a plus of 0.02 per cent at 3,495.85 points but was able to gain slightly afterwards.

In Germany, the DAX starts the new trading week with a slight premium. At the opening, the German benchmark index is 0.2 per cent higher at 12,211 points. The sharp V-shaped recovery since the August low (11,267 points) thus continues. Since then, the Dax has gained more than 900 points and ultimately closed the downward price gap at the beginning of August.

From a technical perspective, the completed inverse shoulder-head-shoulder formation continues to provide momentum. Jörg Scherer, Head of Technical Analysis at HSBC Trinkaus & Burkhardt, calculates the resulting price target at 12,400 points.

Forex, gold, oil and crypto

The Euro is trending sideways in early trading at the current 1.1028 Dollar level. The Aussie dollar, on the other hand, continues its upward movement and is currently trading around $0.6860. The overall US dollar weakness at present can also be seen with the USD/CAD currency pair. The pair is currently trading below $1.3166. 

At the beginning of the week, oil prices on the commodity markets recorded strong growth. One barrel of the Brent variety currently costs roughly $62, WTI prices are $57 a barrel. The gold price can stabilise after its recent losses. At present, the troy ounce of gold is gaining 0.1 per cent to just under 1,509 dollars. The overriding trend continues to point upwards. 

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The cryptocurrency market is continuing its sideways movement and is still kept in a tight range between $260 and $270 billion. Bitcoin took a substantial hit over the weekend and is down to $10,100 at present. The number two and three digital assets in terms of market capitalisation, Ethereum and XRP (Ripple), didn’t follow this trend and even gained some percentage points. One Ethereum currently costs approximately $179 and one XRP $0.26.

Corporate and world news

No-Deal-Brexit unlikely, but…

In addition to the hope of lower interest rates, which could favour equities over bonds, positive developments in politics had also recently brought more calm to the stock market. The British House of Lords passed the law against an unregulated Brexit. Besides, the opposition parties reject Prime Minister Boris Johnson’s goal of a new election in mid-October. This was agreed by Labour leader Jeremy Corbyn and other leading politicians in talks in London.

Boris Johnson’s government had announced that it would make a new attempt next Monday to push through a new election. The prime minister plans to hold a vote on 15 October and then appear two days later at the EU summit with a mandate for his Brexit course.

According to the German Institute for Economic Research (DIW), an unregulated Brexit would be less bad for Germany than another postponement. “What I see now in terms of risks is uncertainty,” said DIW CEO Marcel Fratzscher. “Better an end with horror than a horror without end – better a hard Brexit now than a hanging game that will drag on for another year or two”.

Daimler and Geely now also cooperate on air taxis

The car manufacturer Daimler and the Chinese major shareholder Geely extend their cooperation to air taxis. The Chinese company is joining the air taxi company Volocopter via financing round, as the companies announced on Monday in Frankfurt before the start of the IAA motor show.

Daimler has been involved in the start-up company since 2017, which is developing helicopter-like flying taxis with electric propulsion. The aircraft will be used primarily in congested and smog-stricken megacities, including China. Geely acquired a 9.7 per cent stake in the Daimler Group in February 2018, making it the largest shareholder in one fell swoop.

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Munich Re expects premiums to rise

The world’s largest reinsurer expects premiums to continue rising after the price increases for insurance cover. He expects further stabilisation and price increases, said Munich Re Board member Torsten Jeworrek at the industry meeting in Monte Carlo.

Overall, reinsurance premiums are expected to rise by two per cent. Hurricane Dorian, which hit the Bahamas in particular, will cost the industry a mid-single-digit billion sum.

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