DAX: Stocks rise amid stimulus hopes, positive data and... | ThinkMarkets

But will the rally hold as the resurgent coronavirus continues to cause havoc for many European countries?

It is getting quite boring now, but unfortunately speculation over US fiscal stimulus continues to the dominate investor sentiment even as virus cases continue to spiral out of control. In recent days, optimism has risen that a deal might be on the cards after all. Speaker of the House, Nancy Pelosi, said she and Steven Mnuchin are "just about there" in resolving a key piece of a fiscal package. Although a deal before the election still looks unlikely, investors no longer believe that there won’t be any further stimulus. In fact, the deal is likely to be much bigger under the Democrats than Republicans, which is why the delay hasn’t caused a panic or the rising possibility of Joe Biden becoming the next US President hasn’t freaked out investors yet. Still, with the Senate likely to remain under the control of the Republicans, it may be easier to get a deal through while Trump is still the president. If so, the markets should respond positively so long as the package is not too small.

Meanwhile, boosting sentiment further today has been news of positive company earnings and economic data, as well as encouraging news on potential COVID-19 vaccine and treatment.

Coronavirus: Although the situation regarding coronavirus has gotten worse, with many European countries reporting record cases and rising deaths, sentiment has remained largely positive towards risk assets, nonetheless. New measures to slow the spread of the virus include curfews in Pris, Milan, Athens and other large cities, as well as local lockdown, as France, Italy, Germany and many other European nations have reported record infections. More action could be on the way if deaths continue to rise. Let’s hope that’s not the case, but the situation looks quite bleak. Still there is hope…
Virus treatment hopes: Investors remain hopeful that a vaccine will soon become approved, which should help to slow the spread of the virus and thus prevent further growth-chocking restrictions and lockdowns. This is why I think the markets haven’t panicked like they did in March. Indeed, news that the US Food and Drug Administration (FDA) has approved Gilead's antiviral therapy remdesivir has further raised hopes that we are getting closer to finding cures and treatments for COVID. Curevac has meanwhile reported positive pre-clinical data for Covid-19 vaccine, with the company saying its trials have shown strong induction of antibody and t-cell responses.
Economic data: Solid Eurozone manufacturing PMI data helped to lift the EUR/USD in the black and supported European stocks. There was an unexpected jump in German manufacturing PMI to 58.0 from 56.4, which easily beat estimates of 55. This helped to power the Eurozone PMI to 54.4 from 53.7 last. However, the eurozone services PMIs disappointed with a print of 48.9, down from 50.6 previously. On a country level, the German services PMI fell below 50 and into the contraction (48.9), while the French services PMI remained sub 50 for the second month amid virus resurgence (46.5).
We have also had some positive earnings results from Europe. Barclays led the FTSE higher as its shares rose 8% after the lender beat expectations on profits, while the losses on its loans were not as bad as had been feared. BARC was the first large British bank to report its results following positive surprises at UBS and nearly all major US peers. Banks have been a bright spot this earnings season despite the recent central bank interest rate cuts. Their results have been boosted largely by trading operations thanks to heightened volatility amid the coronavirus-related sell-off and the subsequent reflationary rebound. Meanwhile, the day's other European earnings have been largely positive, including from Daimler, Renault and ABB. But not all results were positive, as Intel shares plummeted nearly 10% on disappointing sales and outlook. This comes after disappointing results saw Netflix shares fall about 7% on Wednesday after missing estimates for subscribers, renewing doubts about its ability to maintain growth. However, not all tech names were bad as Snapchat shares rallied to a new record high following its forecast-beating results on Tuesday. Earnings from other social media and tech giants such as FB, AAPL, AMZN and MSFT will be coming up next week. Tech earnings need to live up to the lofty expectations, otherwise the Nasdaq’s outsized really may come to an end as funds find their way into other sectors that have so far underperformed.

So, the start of Friday’s session has thus far been good for risk assets with European stocks and US index futures rising. In FX, the US dollar has fallen against all major currencies, including the euro which got a boost from better manufacturing PMI data. But as we head towards the weekend, might we see some profit-taking given the increased risks of a big economic fallout from the resurgent coronavirus-related restrictions and lockdowns?

Well, the DAX was testing a potential resistance around 12705, following its turnaround on Thursday. So, there was a possibility for the index to start heading lower from here. However, a close above this level would maintain the bullish bias. Key support now is the hammer head from Thursday, around 12600. A potential daily close below this level today or early next week would be a bearish development, from a technical perspective.