To The Moon

DAX Kurslinie

The stock market week, which is dominated by the meeting of the European Central Bank (ECB), begins with rising DAX prices. However, analysts are increasingly warning of an imminent end to the price rally on the German stock market.

3 June 2024. FRANKFURT (Börse Frankfurt). The stock markets have made a friendly start to the new week. After good indications from the USA and Asia, the DAX is valued at around 18,650 points in pre-market trading, 0.9% higher than at the end of the previous week. The leading German index ended the week down 1.0 percent at 18,498 points. The American S&P 500 had fallen by 0.5 percent on balance, but was able to make significant gains in the last hour of trading on Friday. The Asian stock markets picked up on this late rally this morning. Additional support in the form of good economic data caused the Hang Seng Index in Hong Kong to rise by 2.3%. The Japanese Nikkei 225 rose by 1.2% at the start of the week.

Disappointment despite interest rate cut?

The new week will be dominated by the European Central Bank. The interest rate turnaround is to be initiated at the meeting on Thursday. It is expected that key interest rates will be cut by a quarter of a percentage point. Investors will then be eagerly awaiting the central bank's statements on its further course of action. In view of the recent higher-than-expected inflation figures, Christian Lips speaks of a “piece of data that is grist to the mill of the hawks in the ECB Governing Council, at least in the short term”. Although the chief economist at NORD/LB still expects an interest rate cut in the eurozone on Thursday, the next step is unlikely to come “before September”. “The ECB could even explicitly reject a further interest rate cut as early as July,” says Lips, looking ahead to Christine Lagarde's statement.

Against this backdrop, Ulrich Stephan from Deutsche Bank is cautiously optimistic about the prospects for the stock markets. According to the chief economist, whether share prices rise or fall as a result of interest rate cuts always depends on the development of the economy. “If the economy slips into a recession, shares fall; if there is no recession, share prices rise”. As he currently sees “little cause for concern about an economic slump”, Stephan rates the outlook for European equities as positive. However, in his opinion, European equities are not growing into the sky: “In view of the good performance in recent months, I would not go so far as to expect a further 20% rise by mid-2025”.

DAX target for mid-2025 raised to 20,000 points

The analysts at LBBW recalculated their index price targets last week. “Because we assume that the DAX, with its rather cyclical composition, will benefit from the emerging economic recovery, we have adjusted our expectations for the end of 2024 and mid-2025 upwards by 500 points each”. Index levels of 19,000 and 20,000 points are now expected on these dates. However, the fundamentally positive scenario also includes a setback in the coming months. The DAX is only expected to reach a level of 18,000 points by the end of September.

One of the reasons given by the strategists is the “clearly above-average DAX performance since the beginning of the year in a historical context”. Against the backdrop of a “moderate earnings performance” of companies, “profit-taking in the summer months” is therefore to be expected. Specifically, the increase in the expected 12-month forward profit of 4.5 percent for the DAX is “clearly below average” in a historical context. “On average over all 36 DAX years completed to date, the 12-month forward profit had already risen by 6.8 percent at this point in the year”.

Commerzbank analysts describe the recent increase in interest rate volatility as the main driver of the consolidating stock markets, which is unlikely to change this week. “A continuation of this consolidation is the most likely scenario, also due to the lack of new impetus as the reporting season draws to a close,” the experts say.

Technical picture: time for profit-taking?

From a chart technical perspective, the focus is on the area around 18,500 points, which was already undercut at the close on Friday. Jörg Scherer from HSBC refers to the old record high of 18,567 points, the low of May 24 at 18,516 points and the 200-hour line at around 18,540 points. In his opinion, a final break of this key zone would “turn the recent sliding zone into a short-term top formation with an imputed discount potential of 350 points”.

Marcel Mußler from Mußler Briefe is also very skeptical. According to the chart technician, correction risks are currently beginning to dominate. The upward swing that has been underway since the end of October is therefore more and more obviously coming to an end after weeks of oscillation and declining momentum. “The time for profit-taking is here,” warns the technical analyst. However, he does not want his analysis to be understood as a crash forecast. What is unfolding here is “simply a completely normal year with its usual seasonal stages”.

Important economic and business events of the week

Monday, 3 June

10.00 am. Eurozone. Manufacturing Purchasing Managers' Index: Economists expect an unchanged weak average value of 47.4 for May.

16.00. USA. ISM manufacturing index: While market participants on average expect a slight increase from 49.2 to 49.7 points, Commerzbank is still somewhat more optimistic with a forecast of 50.2. Helaba and NORD/LB are only forecasting 49.5 points.

Tuesday, 4 June

4:00 pm. USA. Industrial New Orders: According to the consensus estimate, the data published for April should show an increase in orders of 0.7 percent compared to the previous month. Helaba is much more cautious with a forecast of plus 0.3 percent.

Wednesday, 5 June

10.00 am. Eurozone: Purchasing Managers' Index for Services: The threshold of 50 points should continue to be clearly exceeded in this segment. The market consensus forecast for the Eurozone is unchanged at 53.3 points.

4.00 pm. USA. ISM Services Index: In the USA, too, the leap over the 50-point mark should succeed this time. After a value of 49.4 in April, economists now expect 51.0 points.

Thursday, 6 June

2.15 pm. Eurozone: ECB interest rate decision. The market has priced in a cut in key interest rates by 25 basis points to 3.75 percent. The subsequent press conference with ECB President Christine Lagarde is eagerly awaited.

Friday, 7 June

2:30 pm. USA. Labor market report: An unchanged unemployment rate of 3.9% and 185,000 new jobs (ex agriculture) are expected. However, LBBW (150,000) and NordLB (165,000) are forecasting much lower figures, while Helaba expects at least 175,000 new jobs.

By Thomas Koch, 3 June 2024, © Deutsche Börse AG