FRANKFURT (DEUTSCHE-BOERSE AG) - The feared shift to the right in the French elections has failed to materialize, but the political problems remain. On the stock markets, the focus is now shifting to corporate results. The traffic lights are green on the charts.

July 8, 2024: The results of the run-off election in France have left the stock markets somewhat perplexed at the start of the new week. Although the crash feared in the event of an absolute majority for the right-wing Rassemblement National (RN) does not materialize, there is no great euphoria following the victory of the left-wing alliance and the threat of political instability. The DAX is valued at around 18,470 points in pre-morning trading. The leading German index ended the past week at 18,475 points after gaining 1.3 percent. In the USA, the S&P 500 even managed to gain 2.0% over the week, continuing its high.

Focus on inflation data and reporting season

According to LBBW, the "macro highlight of the week" in the coming days will be the US consumer prices due on Thursday. According to the economists, inflation is likely to fall for the third time in a row due to the fall in gasoline prices. This could improve the prospect of interest rate cuts by the Fed in the near future, after the recent rather weak economic data in the USA had already given rise to corresponding hopes. According to Commerzbank, this was precisely one of the reasons for the further rise in share prices. However, the analysts immediately followed this up with a warning: "The longer the series of economic disappointments continues, the more companies' earnings prospects will deteriorate. This suggests consolidation".

The editors of "Wellenreiter Invest" also point out that the US low-cost economic model GDPNow is currently forecasting growth of just 1.5 percent in the second quarter. Just a few weeks ago, the figure was still 3 percent. The reporting season for the second quarter, which starts on Thursday, will provide the first insights into companies' concrete prospects. Traditionally, the focus is on the major banks at the beginning, before it becomes clear later on whether the major technology companies can once again live up to the very high expectations.

Bitcoin crash as a harbinger of a stock market correction?

According to "Wellenreiter Invest", the recent development of Bitcoin, which often serves as a leading indicator, could prove to be problematic. Last week, the world's largest cryptocurrency slipped below the USD 55,000 mark for the first time since February. Over the month, Bitcoin has lost almost a quarter of its value. This also makes a correction on the US stock markets more likely. From a seasonal perspective, however, July was an above-average month, before August and September showed a statistically weaker development.

The analysts at DZ Bank are much more confident, seeing further upward potential for the stock markets after the generally pleasing first half of the year. This applies in particular to Europe, where the DAX is expected to rise "to the region of 19,500 points" by the end of the year. From the current level, this would be an increase of 1,000 points or a good five percent. Over the course of the year, the experts believe that the index should even manage to break through the 20,000-point mark.

Technical buy signal for the DAX

Chart technicians are also raising hopes of rising prices. Jorg Scherer from HSBC speaks of a "pro-cyclical investment buy signal for the DAX, which is bringing the previous all-time high of 18,893 points back into focus". The decisive factor for this is the jump above the "key barriers" from the most recent correction trend and the 50-day line. As a result, the pause for breath of the last two months could be interpreted as a (upward trend) confirming consolidation flag. In perspective, a price target of around 19,200 points could even be calculated, provided the DAX does not fall back into the described correction flag.

Important economic and business events of the week

Monday, July 08

10:30 am. Eurozone: sentix economic index. "Economic expectations are tilting", according to Deka's weekly preview. Its strategists fear that the index will slip from plus 0.3 to minus 1.9 points. This is well below the consensus of minus 0.3 points.

Tuesday, July 09

16.00: USA: Hearing of Jerome Powell before the Senate Banking Committee

Wednesday, July 10

20:30: USA: Speeches by several members of the Federal Reserve

Thursday, July 11

14:30. USA: Consumer prices. In what is probably the most important economic data for the banks this week, Commerzbank expects the core rate to remain at 3.4 percent. The overall inflation rate is expected to fall from 3.3 percent to 3.1 percent. From the Fed's perspective, analysts believe this would "somewhat increase the certainty that inflation will fall to its target of 2 percent on a sustained basis".

Friday, July 12

14:30. USA: Producer prices. Economists expect a modest 0.1 percent increase in both the overall rate and the core rate.

16.00. USA: Consumer confidence. A value of 67.0 points is expected, after the index of the University of Michigan was last at 68.2 points.

By Thomas Koch, July 8, 2024 © Deutsche Borse AG

(Deutsche Borse AG is solely responsible for the content of this column. The articles are not an invitation to buy or sell securities or other assets).