Que va-t-il se passer en Allemagne au cours des prochains mois ? – Valérie Gastaldy, Day By Day

Valérie Gastaldy, du bureau d’analyse technique Day By Day, contribue pour la première fois à The Daily Finance. Leur approche est donc, par nature, différenciante. Le theme abordé par Valérie est le ralentissement de l’économie allemande et notamment de la production industrielle. Sommes-nous dans une situation de survalorisation des actifs allemands ? La réponse en graphes…

 

GERMAN SLOWDOWN TO CONTINUE UNTIL 2019Q3

Our complete behavioural analysis methodology involves three different steps. The first one is an assessment of the economic background. This is a long-term view, it is based on the study of economic cycles. The second stage of our methodology involves assessing sentiment. We conduct that assessment from derivative market data (implied volatility and/or Put/Call ratios). Then, price patterns allow setting triggers and invalidations. We usually conduct this complete analysis on US data, as it is available over a long period. We have attempted identifying long-term cycles for the German economy. We are submitting our results today. The conclusion is dramatically obvious. German Industrial Production should slow down until 2019Q3, sentiment has been very over-optimistic as the Dax formed a bearish reversal pattern. We now have to wait until all the stages preceding the end of a bearish trend can be registered before we can hope for a serious improvement. It will take time.

Industrial Production (6-month Rate of Change), Monthly

 

This chart represents the evolution of German Manufacturing production since 1950, represented by the 6-month variation.

The available 68 years of history encompass one complete 34-year cycle, from 1978 to 2012. That cycle is represented by the plain grey line.

We had to hypothesise that the previous cycle, dotted grey line, started in 1943, but of course this could be debated. This hypothesis allows matching the rest of cycle from 1950 to 1978 according to the typical rhythm we can expect for a 34-year cycle.

The red line displays the new cycle that started in 2012.

The German East/West reunification is indicated by a green arrow. It took place a little before the end of the separation cycle. Separation cycles play a major part in evolution. During the 10 years of those cycles, Societies evolve away the previous 33/35-year cycle and towards a new socio-economic model. Germany probably evolved away from a major military Empire -which was a dominant characteristic of the era between 1905/1910 until 1943/1945- towards a mercantilism-based society. It then evolved from the cold-war polarised economic model to a global economic model during the 1978/2012 cycle. It now has to evolve to a new model for the next 30 years. We will only understand the key driver of that new model later.

Those 68 years of Manufacturing data behaved rather satisfactorily compared to our standard road-map. This is a first trial on this set of data, we might find a way to adjust it even better, but we will start working with this as a model.

This analysis leads us to expect a significant slowdown or recession for Germany in 2019Q3. It may not be as drastic as the recession of the previous cycle which was caused by the second oil shock. But it is probably too early to expect an improvement of the German economy.

IFO – Climate and Expectations, Monthly

 

This chart displays the 1-year change in IFO business climate horizontally, and the 1-year change in IFO business expectations vertically.

Our analysis of the IFO evolution has consistently been pointing to a contracting German economy since the beginning of Spring. It is consistent with our cycle expectation. We need this indicator to move to the recovery quadrant before we can assume that we have reached the bottom of the German industrial production.

DAX 30 Open Interest Put/Call ratio (10-day MA), Daily

The chart above displays the evolution of the Open Interest Put / Call  ratio in blue (as a 10-day MA), together with the Dax 30 in black.

The Dax 30 head-and-shoulders has been forming since 2017 -this is the date of the first shoulder. The Put/Call ratio reached an extreme at that time. This means that investors were holding twice as many puts as calls on the Dax30. They were extremely hedged.

When the index reached a new high (the head), in late 2017/early 2018, the Put/Call ratio had declined a little. Investors were a little bit less worried (they held less puts than previously).

This hedging declined even further since the end of the Summer, when the Dax 30 trend became bearish.

This situation is similar to what happened in 2007/2008, while the index built its reversal pattern.

We now have to wait for sentiment to become excessively bearish before we can forecast the end of the bearish trend.

DAX 30, Monthly

German equity prices have anticipated the IFO contraction as they peaked in January 2018, and that top was only marginally higher than the November 2017 peak.

Last month, the Dax triggered a head-and-shoulders pattern. The theoretical target of the pattern is around 9850. This level happens to be the 38% Fibo of the rally since 2009 low.

Unless prices give us a strong contradictory signal, we have to assume that the reversal pattern consequences are not over. The Dax30 can lose -14%.

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Valérie Gastaldy
A propos Valérie Gastaldy 1 Article
Valérie Gastaldy, MSTA et CFTe, est stratégiste et analyste Global Macro et Equities, au sein du bureau d’analyse DayByDay. Diplômée de l’ESSEC, elle a obtenu son diplôme d’analyse technique internationale, il y a 20 ans. Elle a débuté sa carrière en tant que market maker sur options, pour devenir pas la suite trader. Elle a co-fondé DayByDay. Elle est à présent en charge des indices internationaux et elle gère l’allocation globale d’actifs pour des gestions alternatives et long only. Valérie participe également à l’allocation tactique pour les actions. Enfin, elle co-anime le programme de formation DayByDay.

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