Dusseldorf Germany’s leading index extended its short-term consolidation after a four-week rally on Thursday. The Dax went 1.7 percent lower at 14,199 points from trading.
The preliminary announcement of the planned increase in key interest rates by 25 basis points in July weighed heavily on the stock market. For now, however, the key interest rate will remain at the record low of zero. Banks must continue to pay 0.5 percent interest on parked funds at the ECB. As expected, the ECB will discontinue its bond purchase program at the end of the quarter.
The decision had an even clearer impact on the bond market. For Thomas Altmann from the investment house QC Partners, there is a “sell-out atmosphere”. Accordingly, prices have fallen significantly and yields are rising.
The yield on a ten-year federal bond climbed over eight percent to over 1.47 percent within a few minutes. For a two-year federal bond, which reacts particularly strongly to monetary policy measures, this value was now 0.842 percent, an increase of more than 20 percent within a few minutes. In the meantime, however, the situation on the bond market has calmed down again at a high level.
The reason: the central bank has significantly raised its inflation forecasts. And not just for the current year. For 2023, too, the ECB forecast of 3.5 percent is now well above its target of two percent. Inflation should not be within the range of the ECB target again until 2024.
The adjusted inflation expectations make both larger interest rate hikes and a longer cycle of increases much more likely, says Altmann: “Very few expected such a significant upward adjustment”.
Investors fear that possible interest rate hikes could trigger a new euro crisis. Gané fund manager Marcus Hüttinger considers this unlikely for the time being.
That is why Gané invests in short-term German and Spanish government bonds, which offer an attractive money market substitute due to the increased yields and high liquidity. “Nevertheless, we are aware of the challenges for European government budgets and are therefore staying away from longer maturities,” said Hüttinger.
Good news came from a survey conducted by the Frankfurt Stock Exchange among medium-term private and institutional investors. Because according to the behavioral economist Joachim Goldberg, who evaluates the survey, a majority of professionals have adjusted to a bear market rally in view of the price gains of 1300 points in the past four weeks, so expect prices to fall again soon.
“The willingness to go short when the Dax levels rise is not overwhelming, but it is unmistakable,” says the former currency trader. Such behavior is good for the German stock market for two reasons.
>> Read here: Turnaround in interest rates, bond purchases, outlook, aid for southern Europe – these are the points that matter at the ECB meeting
On the one hand, rising short speculation provides a safety net. Because put options work practically like short sales. Put simply, this means that if an investor buys a put product on the Dax, the bank has to sell the Dax in the background. And when the derivative is sold, the Dax must be bought back again. Goldberg expects the pros to want to pocket their gains in the 14,150 to 14,250 point range – which gives the Dax some support there.
On the other hand, such behavior has the potential for surprises on the upside. Should the German stock market rise on positive news, the shorts would have to follow these rising prices and would thus fuel this rally.
The number of pessimists is still too small for such a scenario, but it could succeed with the help of foreign capital: “Precisely because the consensus of many commentators and strategists for the Dax is still ‘bear market rally’, any price surprises are more likely Expect upside,” explains Goldberg.
Look at the individual values
Gerresheimer: The share is traded with a dividend discount of 1.25 euros. The closing price on Thursday evening was EUR 73.05.
Heidelberg pressure: After a surge in profits last year, the company sees itself on course for growth despite rising energy and raw material costs. The stock fell 4.7 percent. The trained physicist Ludwin Monz has been in charge of the group since April. Printing machines are to remain a cornerstone of the business. In order to position itself more broadly, the SDax group entered the business with charging wall boxes for electric cars.
Wacker chemistry: A negative analyst comment weighs on the paper. The shares of the chemical company fell by 6.3 percent. JP Morgan experts downgraded the stocks to underweight from neutral.
High Low: One of the biggest losers on the German stock market is the paper of the construction group with a price drop of more than five percent. The company is collecting 406 million euros from investors to finance the complete takeover of the subsidiary Cimic. According to the information, the papers were placed at EUR 57.50 each. One stockbroker complained that it was not a good sign that 85 percent of the title had gone to Hochtief’s major shareholder ACS.
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