Bulls will hardly take over in Germany

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THE Covid-19 crisis has hardly made any country economically stronger, and current expectations indices for Germany show the same situation. The ZEW index and consumer confidence are both below expectations of financial markets.

He points out that the new Chancellor Olaf Scholz is seizing a country with a muffled mood. However, consumer confidence has also weakened more than expected amid persistently high inflation, a concern that could impact investors and financial markets.

Naturally, the European Central Bank (ECB) is not mentioned in the new coalition deal, but there may still be strong views towards the ECB in parts of the new government, notably within the liberal FDP party. The party had its president Christian Lindner as the new finance minister. In today’s political landscape, he will likely be seen as a “tough one,” but in the turbulent times that are likely to occur from time to time in the years to come, it is possible that Lindner’s tough stance has been taken. a calming effect on the financial markets.

Southern European countries, on the other hand, will hardly feel reassured and, quite unusually, French President Macron criticized Lindner’s prospect as German finance minister early on. The first blow could be concerning the monetary policy of the ECB, because in the political organization of the FDP there are strong critical voices against European monetary policy.

An example is Daniel Föst, the general secretary of the FDP in Bavaria, who even criticizes the ECB on several levels. He argues that the power of the ECB has grown too robust by being both a central bank and at the same time overseeing the eurozone’s biggest banks. The heart of the critics, however, is the zero interest rate policy and the ECB’s bond buying program. As Föst points out, the zero interest rate policy and bond buybacks were conceived as an emergency monetary operation to be followed by economic reforms in euro area member countries. Föst blames southern eurozone members for not implementing the reforms and as a result the ECB’s emergency solution ended up being a lasting and unhealthy economic stimulus. I could imagine this discussion flaring up anytime soon, and it could come against the backdrop of southern Europe’s renewed wishes for more economic commitments from Germany.

Friday can already give an idea of ​​the expectations of the euro zone vis-à-vis the new German government. Here Scholz meets French President Macron, and as the piggy bank is still empty in France and the rest of southern Europe, the economy will most likely be one of the themes.

Far-sighted journalists questioned Scholz on this issue as early as Wednesday, the very day he took office as chancellor. Of course, he was defensive in his response, but made reference to the European Union (EU) bailout fund, which is gigantic, although many may have forgotten about the fund and only limited amounts were made. paid.

I contend that this point was the central key to his statement, that as long as there is funds in the EU rescue fund to pay, it must be enough. If this is the attitude that French President Emmanuel Macron faces, then it could be a disappointing day at the Elysee Palace in Paris.

I expect similar results for several years to come after the meetings between Germany and its southern European friends. You have to keep in mind that Scholz was finance minister in the previous government, so when Olaf Scholz and Christian Lindner travel together it’s de facto two German finance ministers who come to visit – and it won’t be easy.

My overall assessment is that the new German government will not contribute to a new economic dynamic for the euro area. On the contrary, it is possible that the fronts within the Eurozone will intensify, which could put a slight pressure on the Euro. But again, I see no reason to change my recommendation to underweight the Eurozone in the allocation to global equities.

In the German domestic economy, green and sustainable investments will be revalued, which is evident since this spring, this should already be included in stock prices. However, I am still curious about the automotive sector, as I consider that the sector may lose more subsidy / indirect support than what is currently listed on the stock exchange.

Regarding the overall investor consideration as to whether it is ‘the bulls’ or ‘the bears’ that will dominate the stock market, I would say that when it comes to the German stock market, investors can take an early Christmas vacation – there is nothing in the government’s new german policy program to suggest that the bulls will take control of the german stock market.

Peter Lundgreen is the founding CEO of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a powerful entrepreneur in investment and finance. Peter is an international columnist and speaker on topics relating to global financial markets.

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