Over the last few days markets have started to look at negative catalysts again, e.g. growth fears in Europe, the growth slowdown in China and the geopolitical risk factors, such as a looming Ukrainian default. In this context DAX bears welcomed this week’s decline in Ifo expectations below the 100 mark. And the accelerating slowdown in China’s housing market might have worked as a key trend which depressed the iron ore price below $80 per tonne to a 5-year low (chart 15).
DAX bulls, by contrast, argue that the weak iron ore price is also a result of the steady increase in global iron ore production. Furthermore, DAX bulls like the recent trend that inflation expectations have fallen again in the euro zone and the US (chart 16). Therefore, the probability of a large-scale quantitative easing by the ECB has risen. And the Fed might stick to its ‘considerable time’ phrase longer-than-expected in an environment of falling inflation expectations.
Besides euro zone and Chinese growth fears, on the one side, and hopes for more monetary stimulus on the other, the Q3 earnings season is set to become a key catalyst in the coming weeks. In our view companies are likely to continue pointing to disappointing growth trends in the euro zone in the coming weeks. However, some companies might stress an improved earnings outlook if the recent weakness of the euro seems set to continue. All in all, we expect DAX EPS 2014 and EPS 2015 forecasts to
