Elections are scheduled for France next week and the USA in November. Possible changes in the political landscape could also have an impact on the financial markets.
Next week, the elections in France could also have an impact on the stock market. The change in the political landscape that polls indicate has implications far beyond France.
“The far-right and populist Rassemblement National (RN) party under Marine Le Pen is clearly leading in the polls, while at the same time a strong left-wing alliance has formed,” says Metzler chief economist Edgar Walk, describing the situation. “Both camps want to roll back reforms and distribute more social benefits, which could increase the current deficit from around 5.0 percent of gross domestic product (GDP) to a worrying 9.0 percent.”
Investors’ mistrust is growing
This would not go unnoticed on the financial markets. The weakness of the French stock exchange and developments on the bond market have already provided a foretaste. Investors’ distrust has grown. “With more than 50 percent of French government bonds held, these are predominantly foreign creditors who sell bonds more quickly than domestic creditors when there is bad news.” Market distortions are therefore possible.
But it is not just the elections in the neighboring country that are good for turbulence. The US presidential elections are also casting their shadows ahead. This is all the more true since after the most recent TV debate the question is no longer just “Biden or Trump”. After the appearance of the incumbent US president, who has fueled questions about his health, experts no longer rule out a short-term change of candidate among the Democrats. But this would bring additional uncertainty to the US election campaign and thus something that is not normally good for the stock markets.
Capital market strategist: The market is overbought
Investors could use the uncertainties as an opportunity to cash in on the hot US technology stocks. Capital market strategist Jürgen Molnar from the broker RoboMarkets sees the development at the US semiconductor manufacturer Micron as a warning signal. “Continued dynamic growth in sales and profits and, according to the company, sold-out memory chips were not enough for investors; they sold the stock,” said Molnar. “When good news no longer reaches the stock exchange, the market is overbought.”
The signs for the DAX are anything but good. “After a nine percent increase in the first half of the year and only a slight correction so far, it could be difficult for the market to escape the summer slump,” predicted Molnar. “Especially if the signs on Wall Street are pointing to selling for a change.”
Warning signals from the domestic economy
There are also warning signals from the domestic economy. Economists at Landesbank Baden-Württemberg (LBBW) do not see the latest Ifo business climate index as a one-off slip-up, but rather as a bad omen. “Economic performance is likely to be close to stagnation in the second quarter and there is no hope of better times in the third quarter either,” says LBBW.
The Dax ended the past mixed trading week with gains. However, the willingness to buy was limited: at the end of trading, the German leading index was still 0.14 percent higher at 18,235 points, after once again failing to break through the resistance zone at 18,350 points. On a weekly basis, the Dax recorded a gain of 0.4 percent, whereas the balance for June was negative.
New inflation data next week
Inflation data at the beginning of the week could also set the tone for the coming week. “Basically, the inflation trend in Germany and the eurozone as a whole remains downward, which should give the ECB further scope to cut key interest rates over the course of the year,” noted Robert Greil, chief strategist at the private bank Merck Finck.
There are also some important sources of information from the USA. The ISM purchasing managers’ indices for June and the minutes of the most recent Federal Reserve meeting are on the agenda. They are likely to be examined for clues about future US monetary policy, as is the most important indicator at the end of the week, the labor market report for June.
Source: Stern
