Image source: National Association of Manufacturers (NAM)
Earlier today, Destatis released crunching data regarding the German Gross Domestic Product. According to the findings of the preliminary GDP report, the German economy has contracted by 10.1 per cent in the second quarter.
This comprises a considerably bigger economic crunch compared to what the initial market expectations were projecting.
The market was anticipating to see a contraction of 9 per cent, but evidently the coronavirus crisis, and the government measures to contain the pandemic, have exacerbated an even bigger hit on headline economic activity.
Germany GDP Growth Rate. Image source: TradingEconomics.com
Shortly afterwards, the Bureau of Economic Analysis in the US released an even more discouraging data concerning the state of the American economy. According to the advanced GDP report, the US economy has contracted by a massive 32.9 per cent in the second quarter.
The fact that those numbers are a little bit better compared to the consensus forecasts, which were expecting a decrease of 34.5 per cent, represents little consolation for economists and US market experts.
US GDP Growth Rate. Image source: TradingEconomics.com
The two economic reports had a sobering impact on the slightly disillusioned stock market, which had been steadily advancing since March.
Chiefly, the massive economic contractions in Germany and the US underlined the protracted impact of the coronavirus fallout on the fragile global recovery and signalled traders and investors that the worst of the crisis may yet be ahead of us.
This assertion is inlined with the concerns of the FOMC, which were expressed in the Monetary Policy Minutes yesterday. Moreover, the fears of a second coronavirus wave could exacerbate the woes for the already strained global economic activity.
As can be seen on the 4H chart below, the DAX index plummeted following the release of the German GDP data, while the Dow Jones Industrial Average is for the time being relatively unfazed by the US numbers.
The Gross Domestic Product data from today represents yet another impediment for the potential continuation of the stock market rally. The other major factor that warrants attention is the relatively disappointing earnings season, which caused the initial ripples of the rally.
The underlying technical outlook is becoming increasingly more bearish-oriented, which could be perceived as an early indication of a potential reversal. In other words, the recent rally could be over, and the market might be currently transitioning towards developing a new bearish correction.
Indices Comparison Chart. Image source: Trendsharks ©, created with TradingView.com
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