Stock exchange - Upcoming elections have an impact on financial markets
In the coming week, the elections in France could also impact the stock exchange. The change in the political landscape, as indicated by the surveys, has far-reaching consequences beyond France.
"The far-right and populist party Rassemblement National (RN) led by Marine Le Pen is leading in the polls, while a strong left alliance is forming at the same time," explains Metzler Chief Economist Edgar Walk about the situation. "Both sides want to reverse reforms and distribute more social welfare, which could increase the current deficit of around 5.0 percent of the Gross Domestic Product (GDP) to worrying 9.0 percent."
The distrust of investors is growing
This would not go unnoticed on the financial markets. The weakness of the French stock exchange and the development on the bond market have already given a preview. The distrust of investors is growing. "These are mainly foreign creditors, who sell the bonds faster than domestic creditors when the news situation is bad," says the market expert. "Market turbulence is therefore possible."
However, the elections in the neighboring country are not the only source of turbulence. The US presidential elections are casting long shadows as well. This is all the more true since the latest TV debate has raised the question "Biden or Trump" to something else. With the appearance of the incumbent US President, who heatedly answered questions about his health status, experts consider a short-term candidate switch among the Democrats to be no longer excluded. This would bring additional uncertainty into the US election campaign and something that the markets normally do not like.
Capital market strategists: The market is overbought
Investors could take advantage of the uncertainties to sell the heavily traded US technology stocks. Capital market strategist Jürgen Molnar from the broker RoboMarkets assesses the development at the US semiconductor manufacturer Micron as a warning signal. "Further dynamically increasing sales and profits and sold-out memory chips were not enough to keep investors from selling the stock," says Molnar. "If good news no longer comes to the stock exchange, the market is overbought."
Therefore, the signs for the DAX are far from good. "After a gain of over 9 percent in the first half of the year and only a slight correction so far, it could be difficult for the market to avoid the summer lull," predicts Molnar. "Especially since the signs on Wall Street are already pointing to selling."
Warning signals from the domestic economy
Additionally, there are warning signals from the domestic economy. The economists of the Landesbank Baden-Württemberg (LBBW) do not view the latest Ifo Business Climate Index as a mere outlier, but as a bad omen. "It is likely that economic output in the second quarter is close to stagnation and there is also a lack of imagination for better times in the third quarter," says the LBBW.
The past mature trading week came to an end with gains for the Dax. However, buying interest remained in check: At the close of trading, the German leading index noted 0.14 percent higher at 18,249 points, having failed once again to break through the resistance zone at 18,350 points. For the week, the Dax recorded a gain of 0.4 percent, while the balance for June was negative.
New inflation data next week
Moreover, there could be accents in the coming week due to new inflation data at the beginning of the week. "Basically, the inflation trend in Germany, as well as in the Eurozone as a whole, remains downward-oriented, which should give the ECB further scope for interest rate cuts in the further course of the year," noted Robert Greil, Chief Strategist of Merck Finck Private Bank, adding.
Furthermore, there are some important drivers from the US. The ISM Purchasing Managers' Indices for June and the minutes of the latest FOMC meeting are on the agenda. They could provide hints for future US monetary policy, as well as the most important indicator at the end of the week, the June employment report.
- The impact of the elections in France on the financial market is a topic of interest for Metzler Bank's Chief Economist Edgar Walk, who notes that the far-right and populist party Rassemblement National, led by Marine Le Pen, is leading in the polls.
- If the RN wins the elections in France, they plan to reverse reforms and increase social welfare, which could increase the country's deficit and have consequences on stock exchanges in Frankfurt am Main.
- In addition to the elections in France, the US presidential elections are also casting long shadows, with market strategists observing uncertainties and the potential for a short-term candidate switch among the Democrats.
- Investors may take advantage of the uncertainties to sell heavily traded US technology stocks, such as Micron, which Jürgen Molnar from broker RoboMarkets considers overbought.
- The signs for the DAX are not good, according to Molnar, who predicts that the market could face difficult times given its gains in the first half of the year and the trend on Wall Street.
- There are also warning signals from the German economy, with economists of the Landesbank Baden-Württemberg considering the latest Ifo Business Climate Index a bad omen for economic output in the second quarter.
