Düsseldorf The Dax fell to its lowest level of the year on Tuesday. In the meantime, the leading German index was down 1.7 percent at 15,669 points before limiting its losses. Ultimately, the Frankfurt Stock Exchange Barometer was one percent lighter at 15,773 positions.
This marks the beginning of a directional decision on the German stock market. In the coming trading days, the Dax could slide further down.
According to the survey by the Frankfurt Stock Exchange, the domestic professionals only show little interest in buying again in the area of 15,600/15,650 positions. The 200-day line with 15,599 digits, which is much observed by long-term investors, is also in this area.
The current Handelsblatt survey Dax-Sentiment even signals that only a panic sell-off should end the bumpy start to the year. Bumpy because, surprisingly, the leading index is currently below the level of the 2021 closing level. The Frankfurt benchmark ended the past stock market year at 15,885 points. Prices then usually rise in the first few weeks of January because fresh investor money boosts prices.
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In the opinion of the sentiment expert Stephan Heibel, one thing is clear: “The question is therefore not if, but when we will experience a sell-off again, which will lead to panic.” Based on a reader survey, he had already forecast a rather weak half-year in his outlook for the stock market year 2022 . From a technical point of view, the Dax would make a major downward turn if it fell well below 15,000 on a daily closing basis.
After the price slide at the start, the encouraging data from the ZEW index stabilized prices on Tuesday. Despite the Omicron wave, stock market professionals are again surprisingly optimistic about the economy in Germany. The barometer for assessing economic growth in the coming six months unexpectedly rose by 21.8 to 51.7 points in January.
Tuesday’s losses followed a sideways range for the past seven trading days. During this period, the Dax fluctuated between 16,000 points on the top and 15,800 points on the bottom. The two upward “breakouts” during this period to 16,090 points quickly ended, as did the slide on Monday last week to 15,724 points.
This narrow range showed a palpable indecisiveness among investors. Hardly anyone wanted to miss out on a possible continuation of the rally, but there were not enough buyers for that. But now the stock market rule applies: the longer such a sideways phase lasts, the more dynamic the breakout is. Because investors are now taking decisive action.
Interest rate turnaround on the bond market is imminent
A historic turning point is emerging on the bond market: the yield on ten-year Bunds could return to positive territory for the first time since May 2019. According to the financial data provider Refinitiv, the daily high on Tuesday was minus 0.003 percent. At the beginning of December, this figure was just under minus 0.4 percent.
According to Thomas Altmann from the investment house QC Partners, interest rate expectations have increased significantly. For the European Central Bank, the new expectation is two rate hikes of 0.1 percent each this year. For the US Federal Reserve, the consensus estimate is now at least four rate hikes of 0.25 percent each. This weighs on stock and bond prices and increases bond yields.
In the US, too, speculation about a possible monetary policy surprise by the US Federal Reserve is continuing to drive up US Treasury yields. The trend-setting ten-year US Treasuries are yielding plus 1.855 percent. The Fed meets next week after a rather aggressive statement underlining the central bank’s willingness to act in the face of stubbornly high inflation.
For Blackrock’s chief investment strategist for Germany, Austria, Switzerland and Eastern Europe, Martin Lück, “there is no real decoupling of the two markets”. Experience has shown that the transatlantic spread – i.e. the yield difference between US and German government bonds – does not widen further than two percentage points.
It is unlikely that the leading German index will be able to cope with a further rise in interest rates at this rate without major fluctuations. Because with rising interest rates, the cost of capital also rises, while margins and profits for many companies are falling. “That’s why the expensive share valuations are becoming increasingly difficult to justify in an environment of rising interest rates,” says Altmann.
So far, the Dax has coped surprisingly well with the rise in interest rates because it is dominated by value stocks – in contrast to the US indices S&P 500 and Nasdaq 100 with their many technology stocks. These growth stocks are often more indebted and are therefore more affected by rising interest rates.
The rise in interest rates on Tuesday led to the usual reactions on the German stock market. Many technology stocks were down more than two percent. In the Dax, Infineon slipped by two percent. In the MDax, Bechtle were particularly weak with a discount of 3.9 percent. The Compugroup titles lost 3.5 percent after an outlook for 2022.
Look at the individual values
Siemens: The shares were unable to maintain the initial gains after the sale of the road traffic technology subsidiary and fell 2.3 percent. The Italian infrastructure group Atlantia, which is controlled by the billionaire family Benetton, takes over Yunex Traffic for 950 million euros.
Auto1: The online car dealer has helped significantly more vehicles to a new owner in the past year. A total of 617,235 cars were sold, 39 percent more than in the previous year. The stock initially climbed 5.2 percent but ended down 3.9 percent.
Hugo Boss: The fashion group caught up further in the Christmas quarter and thus exceeded its annual targets, which had already been raised. The stock gained 1.1 percent after mixed trading.
Delivery Hero: In view of the expected interest rate hikes, the shares of technology groups trimmed for growth again came under heavy pressure across Europe. Delivery Hero fell 1.4 percent despite an upbeat analyst comment.
Valneva: Fading hopes that the coronavirus vaccine will be approved soon sends the pharmaceutical company’s shares plummeting. They slip by seven percent in Paris. According to the health authority EMA, it is waiting for additional data in order to be able to decide on the approval of the vaccine
Oil prices hit multi-year highs
Oil prices in the Far East climbed to their highest level in more than seven years on Tuesday. Futures of the North Sea variety Brent initially rose to $87.55 per barrel (159 liters), the most expensive since the end of October 2014. The price then stood at $86.85, an increase of 0.4 percent. According to the sentiment analysis, however, the rise should end soon because investors are no longer expecting any further price gains for oil.
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