Markets Update Wednesday 24/06/2020 – Adios!

Frankfurt – 24/06/20

Adios!

The fear of a second wave of the corona pandemic had investors fully under control again on Wednesday, for the infection figures do not point to an imminent end of the crisis.

Given new lockdown announcements from Germany as well as continuing high infection numbers overseas, numerous investors said goodbye to the stock market today.

For a long time, the markets had been counting on a rapid recovery of the economy after the crisis, spurred on by the unprecedented cash injections from central banks and governments. But as the figures show, the crisis is not yet over, despite all the money.

US Markets at a glance

In the middle of the week, the bears took the helm on Wall Street.

The US leading index, the Dow Jones, fell sharply and posted losses of 2.72 per cent at 25,445.94 units. After the massive rum-up of tech-shares the previous days it didn’t come as a surprise that the NASDAQ Composite also declined and ended 2.19 per cent lower at 9,909.17 index units. 

New infections in several states of the USA have climbed to new daily highs. Profit-taking on the Nasdaq technology exchange also weighed on share prices. To make matters worse, it is reported that President Donald Trump’s administration is considering tariffs on $3.1 billion worth of goods. This would affect products from France, Germany, Spain, but also Great Britain.

Far East Markets at a glance

Asian equity markets showed mixed trends on Wednesday. While mainland China’s stock markets rose, other exchanges recorded slight declines. 

In Tokyo, the Nikkei was up a marginal 0.07 per cent to 22,534.32 points at the end of trading. At the same time, the Shanghai Composite index was up 0.30 per cent to 2,979.55 points; however, Hong Kong’s Hang Seng dropped 0.50 per cent to 24,781.58 index units.

European Markets at a glance

The European stock markets went steeply downhill on Wednesday. The EuroSTOXX 50 opened in red and ended the day with a loss of 3.11 per cent at 3,196.12 units.

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The leading German index, Dax 30, lost a significant 3.43 per cent and closed at 12,093 points. It was the biggest daily loss in two weeks. The TecDAX also posted significant losses after a weaker start. It closed 2.42 per cent lower at 2,921.07 points.

The previous day’s gains were lost again on the European stock markets in the middle of the week. Investors continued to focus on the spread of the coronavirus and concerns about a new wave. The better-than-expected ifo business climate index in Germany was unable to provide a positive impulse – investors may have been expecting this after good economic news on Tuesday.

Forex, gold, oil and crypto

In volatile trading, the euro fell in the Forex market on Wednesday despite robust economic data from the eurozone. It was burdened by fears of an intensified trade conflict between the USA and the EU. In New York trading, the common European currency, the euro, last traded at 1.1257 US dollars, after hours earlier it had been trading above the 1.13 US dollar mark. 

Oil prices in the commodity market fell on Wednesday ahead of new inventory data from the US. Traders pointed to the increased oil production in the US. Most recently, North Sea Brent crude costs $40.45 per barrel, $2.21 less than on Tuesday. The barrel price of West Texas Intermediate oil (WTI) fell by 2.19 US dollars to $38.18.

Meanwhile, the price of gold remains at a high level of $1,767 per troy ounce. This means that the price is at its highest level since October 2012.

Cryptocurrencies tumbled alongside equities today with Bitcoin giving away nearly 5 per cent to $9,150. Ethereum, XRP, Litecoin, Bitcoin Cash, etc. all lost between 3 and 6 per cent. Ethereum currently trades at $232, while XRP held better than most other digital assets at now $0.1830.

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Corporate and world news

VW before Europcar takeover?

According to insiders, the car manufacturer VW is in takeover talks with the French car rental company Europcar. Volkswagen has contacted Europcar to express its interest in a takeover and is already checking the books to determine the value of the company (“due diligence”), one of the insiders said on Tuesday. The deal would allow the German car manufacturer to make better use of its fleet, people familiar with the matter explained. An agreement is anything but certain given the financial burden of the virus outbreak, sources added. According to insiders, private equity firms, including Apollo Global Management, have also expressed interest in the car rental company.

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IMF paints a gloomy economic picture

According to the IMF, the global economy is expected to shrink by 4.9 per cent in 2020. As recently as April, the IMF had forecast a minus of 3.0 per cent, which already corresponded to the worst recession since the Great Depression in the 1930s.

The negative consequences for the economy were more severe, and the recovery was probably slower than expected, the fund now announced. This was mainly reflected in weaker consumption and higher savings rates. The IMF expects the global economy to grow by 5.4 per cent in 2021. That is 0.4 points less than in April.

For Germany, the IMF predicts a slump in the gross domestic product (GDP) of 7.8 per cent this year. In 2021, there should then be growth of 5.4 per cent, 0.2 points more than last expected. The IMF welcomed the measures of the Federal Government.

The USA, as the world’s largest economy, is expected to collapse by 8.0 per cent in 2020. For Great Britain, a minus of 10.2 per cent is expected. In Europe, France, Italy and Spain will also be severely affected, with declines of almost 13 per cent predicted in each case. China, the world’s second-largest economy, where the epidemic first appeared and was contained earlier, is expected to grow by 1.0 per cent in 2020 and then by 8.2 per cent next year.

Italy approves billion-euro state loan for Fiat Chrysler

Italy has approved a state-guaranteed credit line for the Italian-American car manufacturer Fiat Chrysler in the billions. The loan of 6.3 billion euros is to support Italian activities, the Ministry of Economics announced in Rome on Tuesday. The Italian credit insurer Sace is covering 80 per cent of the credit volume. Italy will control the commitments of Fiat Chrysler (FCA), said Minister of Economics Roberto Gualtieri without giving further details.

According to Gualtieri, Fiat Chrysler had promised in mid-May to waive dividend payments and job cuts in 2020. The company wants to merge with the French competitor and Opel owner PSA.

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