Economy

Dax development: Serious dangers overshadow the Corona rally

While investors are watching the recovery of the corona shock, there are serious risks for the financial markets in the background.

REUTERS / Lucas Jackson / File Photo

The consequences of the new corona virus have the financial markets and thus the Dax under control. But at the moment, investors seem to be focusing on the time when there is a vaccine or medication for the lung disease Covid-19.

After the fall of the Dax from around 13,800 to 8,200 points, the index has now recovered to almost 11,800 points – an increase of around 45 percent. However, many experts do not expect the Dax to restart its old record levels directly, but that there will be another wave of sales beforehand.

The Dax has risen by more than 40 percent since the March low.

The Dax has risen by more than 40 percent since the March low.

NewsABC.net

Comdirect market expert Andreas Lipkow is also surprised by the robust recovery of the Dax. He warns against concentrating exclusively on coping with the corona consequences. “There are major dangers in the background that are currently completely hidden,” he told NewsABC.net.

Danger number one: renunciation of consumption

Danger number one is an impending slump in the German economy. A scenario that becomes more realistic as the Corona crisis has a stronger impact on the real economy. “Unemployment will rise and employees in management positions or high salaries will also hit, who will not postpone their purchases, but would rather do without them,” warns Lipkow.

Export is of great importance for Germany, but a drop in demand on the domestic market is not easy to compensate for. If the real economy collapses, the DAX also suffers.

Danger number two: Brexit

Brexit is still smoldering across Europe. The topic is no longer as much in focus as in the pre-Corona period, but the fronts are still hardened. Negotiations on a free trade agreement continue to stall and neither side gives the impression of wanting to give in.

Federal Foreign Minister Heiko Maas (SPD) also warns of the consequences. “The UK government is still refusing to extend the deadline,” he says. “If it stays that way, we will have to deal with Brexit in addition to Corona at the turn of the year,” he continues. It would be a toxic mix for the European economy.

Dax and Co. ignore Brexit, however, and probably expect Prime Minister Boris Johnson to collapse. “But if you have little to lose, you can do everything,” warned financial expert Lipkow. A hard Brexit would also have a massive impact on the financial market.

Risk three: US-China trade dispute

The relationship between Washington and Beijing also moved into the background during the Corona era. The trade dispute is far from over and therefore overshadows the Dax rally. “Since the corona situation in China calmed down earlier than in the USA, Beijing could see itself in a better position in the trade dispute and negotiate harder,” says Andreas Lipkow.

At the same time, the US presidential election is getting closer and Donald Trump could act rhetorically even more aggressively to reach his supporters in the election campaign. At the same time, he wants to support the US economy and the domestic stock market and secure jobs

Risk four: persistently low oil prices

But this is exactly where Donald Trump’s ongoing low oil price could put a spanner in the works. “The fracking companies need a WTI oil price of $ 39 so that the technology pays off,” explains Andreas Lipkow. However, it has been trading below this threshold since the beginning of March. The result: The first companies have to file for bankruptcy. For example, Diamond Offshore, which claims to have $ 2.6 billion in debt at the end of 2019.

The ARD reports on a survey by the Kansas Fed that nearly 40 percent of energy companies could go bankrupt within a year if the oil price was around $ 30 a barrel. It is currently trading at $ 34. If groups of companies actually go bankrupt, this affects the US labor market, with it the US economy and ultimately also Wall Street and the Dax.

Dangers sleep under the surface

These dangers have been dormant for a while, but most investors ignore them. They evaluate the aid packages of governments and central banks, which fight the corona consequences, but are ineffective against the dangers in the background. Instead, automated trading systems continue to buy shares sharply because the trend has been rising steeply since mid-March.

The negative reaction will be all the stronger if the hidden risks become reality. “I think a V-shaped recovery of the Dax is practically impossible,” Lipkow explains. He expects a second, violent wave of sales that will push the leading German index below the 10,000 point mark again. Fast, clear price drops are also possible.

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