Dusseldorf The five-week sideways phase in the leading German index has ended. Now, investors should pay attention to the downside. On Friday, the leading index lost another 0.7 percent and closed at 13,893 points.
On the day after the drastic price slide as a result of the ECB interest rate decision, investors acted extremely cautiously. Early in the morning, the Dax briefly dared to exceed 14,000 points, only to quickly fall back below the round mark.
If the Dax rises above 14,000 points again as soon as possible, that would be a positive signal. In this case, optimists would again believe in a year-end rally, in significantly rising prices in the remaining trading days of this year.
There would only be a medium-term reassessment of the situation if the Dax fell below the 200-day line, which is now rising again and is listed at 13,564 points. From this average line, the rally accelerated in early November.
With a drop of around six percent or the equivalent of 800 points since the high last Tuesday, Dax investors are experiencing the first significant setback in two months – a normal occurrence during a rally. The only surprise was the significant price slide on Thursday, when the Dax lost more than 450 points.
This development is likely to have met with goodwill on the futures market. Because Friday was the big expiration day on the stock exchange, also called the witches’ sabbath.
>> Read here: Myth of the Witches’ Sabbath – What happens on the big expiration day in the stock market
On this day, futures contracts such as futures and options on stocks and indices expire. The settlement price for the Dax was set at 1 p.m., for shares at 5:30 p.m. The December date is the largest and most important options expiry date of the year with the highest trading volume.
Both buyers and sellers of call and put options should have been reasonably satisfied with a settlement price of around 13,870 points. With more than 26,000 contracts due today, the Dax put at 14,000 points, which buyers used to protect themselves against falling prices, was the largest position.
Where is the Dax heading? Monday should bring new insights
The next largest call and put positions were not far away at 13,800. So it was no surprise that the Dax settlement rate at midday was just above 13,800 points.
>> Read here: The markets are reorienting – The week of the central banks has caused unrest that is likely to continue
Accordingly, the trading day on Monday should give clearer indications of where the Dax is headed at the end of the year. The influence of expiration days is not limited to the days before and on the day of settlement. In the stock market months of September and October, the leading index fell or rose by around 1000 points by the end of the month.
However, after the November 2022 expiry date, there was only a sideways trend. Nevertheless, the chance of a year-end rally is still there: In recent years, the December expiry date has often initiated a final spurt on the market, most recently in the stock market year 2021. In 2018, on the other hand, the Dax then continued to slide.
Inverse yield curve is getting steeper
The European Central Bank also shook up the bond market with its decisions on Thursday. Two-year Bund yields climbed to a new 14-year high, trading as high as 2.50 percent on Friday. The ten-year federal bond also yielded 2.21 percent at times, the highest level since the end of 2011.
>> Read here: Lagarde announces further rate hikes and balance sheet reductions – How markets and economists react to it
This also means that the so-called inverse yield curve, which in the past was usually a sign of an imminent recession, is becoming ever steeper. Inversely means: With a shorter term of bonds there are higher interest rates than with longer terms – an unusual situation.
This reaction in the bond market is a consequence of the updated ECB forecasts for economic growth and inflation. The ECB is postponing the economic recovery further into the future. For 2023, the monetary watchdogs only expect mini-growth of 0.5 percent.
At the same time, the central bankers are raising their inflation forecasts for 2023 and 2024. This makes the feared stagflation scenario more likely.
Look at individual values
Team viewer: The share was temporarily eleven percent higher before large-scale profit-taking began and almost completely consumed the plus. The specialist for remote maintenance software is retiring from being a shirt sponsor at Manchester United. The decision brings massive savings for the company and improves profitability, said a broker. Teamviewer signed a five-year contract with the British first division soccer team last year, which insiders say costs between 45 and 55 million euros a year
Evotec: A payment of 26 million dollars from the US pharmaceutical company Bristol Myers Squibb does not help the share price. The papers of the biotech company temporarily fell three percent, but made up for their losses by the end of trading. According to the information provided, Evotec will receive the money for progress in the joint development of drugs.
Volkswagen: Thanks to the prospect of a special dividend, more investors are getting involved. The carmaker was the strongest Dax value with an increase of more than two percent. In the course of the day, the shareholders will vote on a distribution of part of the proceeds from the IPO of the sports car subsidiary Porsche AG. The titles of VW’s major shareholder Porsche fell 1.6 percent.
Morphosys: Negative analyst comment increases selling pressure. The biotech company’s shares fell more than 11 percent. At times they were at their lowest level in 14 years. Goldman Sachs experts downgraded the stock to “Sell”.
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