The trigger was a speech by US Federal Reserve Chairman Jerome Powell, which was still echoing at the start of the week. The key message was that the US Federal Reserve sees its top priority in ensuring price stability and, in this context, reducing inflation to its target of two percent. If in doubt, it would also accept a recession for this.
Ulrich Stephan, chief investment strategist at Deutsche Bank, believes that “the Fed could be less rigorous in enforcing its tightening policy than some investors currently expect.” Already on Friday, the yield on two-year US government bonds reached an annual high of almost 3.45 percent.
“I don’t expect US Treasury yields, particularly short-dated ones, to go down anytime soon,” Stephan said. This is a burden for the stock market.
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Jochen Stanzl, analyst at the online broker CMC Markets, therefore fears that after the quiet summer with an interim rally of 1500 points on the Dax, things could get very uncomfortable again: “In view of the adverse news situation and concerns about a recession in Germany, investors are missing any confidence at the moment and thus the willingness to get into equities on a large scale before the uncertain winter.”
This concern is reinforced by the above-average trading volume on losing days. Both last Monday and Friday, when the Dax lost more than two percent, the trading volume in the Dax was over 65 million shares. For comparison: Last Friday, when the Dax reached its interim high of 13,948 points, only 50 million Dax titles were traded.
This underscores the prevailing selling pressure. Because in addition to the central banks and rising interest rates, the focus is also on the sharp rise in gas prices. The Russian exporter Gazprom wants to interrupt gas deliveries via the Nord Stream 1 Baltic Sea pipeline from August 31 for three days due to maintenance work. This fuels fears that the already severely restricted flow of gas from Russia could stop completely if deliveries are not resumed.
Already on Friday, the Dax broke through a psychologically important threshold with the mark of 13,000 points. Here the correction initially stopped after the interim high of over 13,900 points. At the same time, the Dax fell below the moving averages of the last 200 days and the last 50 days (currently at 13,275 and 13,224 points).
Now the next stop is threatening to fall at 12,827 points. The next point of contact would be the support at 12,655 points, below which the low for the year of 12,391 points is already waiting. “In order to take the greatest pressure off the German ‘blue chips’, at least the holding zone at 13,200 points would have to be recaptured, which is currently absolute wishful thinking,” write the chart technicians at HSBC.
Other asset classes at a glance:
Euro falls below parity to the dollar: The euro starts the new week with losses. In the morning, the common currency costs $ 0.9915. It was trading below par again, meaning it was worth less than a dollar, as it had been the week before. The euro was at a similarly low level about twenty years ago. The euro is under pressure mainly because of the appreciating dollar.
Gold falls to four-week low: The prospect of a prolonged period of high interest rates is weighing on the price of gold. The price of a troy ounce of the precious metal fell as low as $1,722 on Monday, its lowest level in four weeks. Since its interim high of $1,803 in mid-August, gold has lost more than four percent in value.
Bitcoin below $20,000: After the price of the cryptocurrency fell below the key mark over the weekend, it is initially unable to regain it on Monday either. According to data from the analysis house Coinmarketcap, it is trading at around $19,800 – in mid-August it was still at $25,000.
Oil prices increase: On Monday, oil prices extended their significant premiums from last week. In the morning, a barrel (159 liters) of North Sea Brent cost US$ 101.82. That was 83 cents more than on Friday. The price of a barrel of the US West Texas Intermediate (WTI) variety rose by $1.09 to $94.15. Oil prices have been buoyed by the prospect of lower supply for the past few days.
Behavior of the VDax indicates further losses
It is interesting that the VDax is currently reacting relatively moderately. The VDax is the so-called fear barometer of the stock exchange and shows the future price fluctuations that professionals expect due to their commitments on the Frankfurt futures exchange Eurex. The higher the VDax is listed, the greater the fluctuations futures traders expect in the next 30 days. Although the VDax has risen, it is only at a value of around 30. That corresponds to nervous trading.
In the past, it was often only values above 50 that signaled panic on the market as the end of longer downward trends. At the end of March, the VDax rose to 48, but obviously that wasn’t enough for a sustainable trend reversal. When the Dax reached a new low for the year in July, the VDax was at 34, well below it.
A possible explanation is that the futures market professionals believed that the worst was over and assumed that the stock market would be calm. But prices may now have to fall significantly lower until panic prevails in the market and a sustainable bottom is reached.
Experience from past trend reversals shows that the highest volatility and the lowest point of a crash do not necessarily have to be on the same day. That was only the case during the Corona crash. At that time, the Dax marked its low point on March 16 with 8255 points, at the same time the VDax reached its previous record high of 93 on that day.
When the technology bubble burst from 2001 to 2003 and during the financial crisis of 2008/2009, however, it took around five months after peak volatility for the Dax to reach its lowest point. However, these Dax turning points were accompanied by VDax values of 50 and were thus well below the current value of 30.
Look at individual values
Bayer: Investors are disappointed with the test results so far for the anticoagulant Asundexian. The shares of the pharmaceutical company fall by almost two percent. The drug missed its primary target in terms of effectiveness, commented analyst Charlie Bentley of investment bank Jefferies.
S Realty: The Austrian real estate group felt the effects of falling market prices in the first half of the year. The bottom line after the first six months of 2022 was a profit of around 62 million euros after 137 million euros in the same period last year, as the company announced on Monday. Total revenue, on the other hand, climbed to EUR 119.6 (previous year: 91.1) million. In view of the war in Ukraine and its effects, the real estate group decided not to provide an outlook for the year as a whole.
With material from dpa and Reuters.
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