A relatively uneventful, but by no means uninteresting week on the stock market lies behind us.
The realisation is that the DAX can also lead a life of its own without Wall Street. When prices fell in New York, the Frankfurt stock exchange showed amazing resilience. On the other hand, with a tailwind from Wall Street, the DAX did not show any real momentum to return to the high for the year.
Above 15,500 points, the willingness of investors to buy is noticeably diminishing, while around 250 points lower they were still buying German blue chips. The market seems to be in a balance between bulls and bears. However, the longer the DAX remains in this sideways range and tests the limits, the stronger the movement is likely to be when one of the two marks - and on the downside it is the 15,250 points - falls.
However, this decision is likely to be made in New York, where the major indices have almost completely given up their gains since the turn of the year and are trading at or near their 200-day lines, which from a technical point of view determine the long-term trend. And precisely because of the DAX's decoupling upwards - the index is still up 12 per cent for the year - its drop height is significantly greater if the dams break on Wall Street.
Share buybacks in the US become less attractive
An issue does not necessarily have to ensure this in the short term, but in the long term government intervention could have fatal consequences for the US stock market. The biggest players in the past two years have not been banks or large asset managers. Share buybacks by companies have been the main driver of trading. Every year, they spent almost one trillion US dollars just to buy back their own shares.
But this could soon come to an end. US President Biden has already imposed a one percent tax on buybacks this year. It is now to be raised to four percent. This would make the capital measure significantly more expensive and very unattractive for companies. This would make the biggest player in the market disappear. To make things clearer, there would then be a calculated shortfall of four billion dollars worth of purchases per day.
BASF faces a difficult future
The chemical company BASF (OTC:BASFY) is being hit particularly hard by higher energy prices. The Ludwigshafen-based company therefore expects a further decline in sales and earnings in the current business year. The eleven percent drop in profits from the previous year is likely to be even greater. Write-offs of the Russian business, worth billions, are causing additional holes in the balance sheet.
The many construction sites are now leading BASF to cut 2,600 jobs. The announced share buyback programme of three billion euros has also come to an end at the halfway mark. The company is under massive cost pressure and is making the right decision to secure its future. Against the background that energy prices are likely to remain at a high level for a long time, however, the company is likely to face major challenges and difficult times ahead for shareholders.
Inflation data from Europe, labour market data from the US
The coming week will be dominated by new inflation data from Germany and the Eurozone and the labour market report from the USA, as on every first Friday of the month. The latter from January should still be very much on investors' minds.
The more than 500,000 new jobs created were the prelude to a whole series of other indicators that showed a robust US economy with persistent inflationary pressure and just no recession signals at all that could move the central banks to a slower pace.
The question now is whether the start of the year was just a blip due to the relatively mild weather in the US or whether a consistently robust labour market will inevitably set in motion the wage-price spiral that will keep inflation and thus interest rates high for a long time to come.
DAX - current supports and resistances:
- Supports: 15,450/15,400 + 15,300/15,250 + 15,100/15,050
- Resistances: 15,500/15,550 + 15,650/15,700 + 15,800/15,850
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This article is from RoboMarkets.