Dusseldorf The German stock market is down this Tuesday. The Dax fell by 0.6 percent at midday to 13,398 points. Yesterday, Monday, the leading index took a breather after the 1100-point rally since the beginning of June and ended trading unchanged at 13,480 points.
Tensions between the US and China are a burden. The chairwoman of the US House of Representatives, Nancy Pelosi, is expected in Taipei on Tuesday in the democratic island republic. It would be the highest-ranking visit by a US politician to Taiwan, which Beijing’s communist leadership sees as part of the People’s Republic of China, in a quarter of a century.
Risky assets are sold and safe investments are bought for fear of a further aggravation of the dispute – although the reactions are by no means dramatic. According to data from the Coinmarketcap website, bitcoin fell by only 2.5 percent to $22,759, while gold tended sideways at $1,772 per troy ounce.
Investors doubt significant rate hikes
The development on the bond market is more interesting. Yields continue to fall there, while prices rise in return. The bond markets have obviously been counting on an easing of future interest rate increases for weeks. On the Chicago futures exchange CME, too, the number of those who only expect an increase of 50 basis points for the September meeting is increasing. It is now 75 percent of professionals, a week ago it was 50 percent.
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US Treasury yields have now fallen to 2.52 percent from a peak of 3.5 percent in mid-June. This is the lowest level since early April. For ten-year Bunds, yields have more than halved from 1.76 percent to 0.70 percent since mid-June. Yields on Germany’s two-year bonds, which are most sensitive to rate hikes, fell to 0.15 percent on Tuesday, the lowest level since May 16.
Money market traders are now wondering whether the European Central Bank will raise interest rates by more than one percentage point against the background of current growth concerns. Money markets briefly suggested on Tuesday that the ECB will be forced to halt tightening before it reaches 100 basis points. On July 21, a total of more than 200 basis points was still expected. The ECB raised interest rates by 50 basis points last month, the first hike since 2011.
Traders are trimming their bets amid fears that excessive tightening could plunge the euro area into recession. Record inflation and the increased likelihood of a Russian energy freeze threaten to send the currency bloc into an economic slump.
The reason for the decline in yields is probably the expectation of falling consumer prices. Jan Viebig, capital market expert at Bank Oddo BHF, assumes that inflation will fall significantly in 2023.
Mainly base effects of the energy price development should contribute to this. The longer-term inflation expectations of market participants have also fallen significantly compared to the highs of April/May 2022. The currently high inflation figures are the main reason for the further interest rate hikes planned by the central banks in the USA and Europe.
13,400 point mark in focus again
After the weak start to trading, the focus of the leading German index is again on the 13,400 point mark. The Dax needed seven trading days to overcome this area as part of its six-week rally. If this area holds, it would probably be a so-called “pullback”, a retest on the way up.
In the negative case, a bullish gap from last Friday could provide support. This upward price gap arose because Friday’s lowest price of 13,341 points was well above Thursday’s highest price of 13,289 points.
According to Jörg Scherer, technical analyst at HSBC Germany, “the mark of 13,289 points offers itself as a hedge on the downside”. Courses below 13,000 points are likely to result in a sell-off.
On the upside is the provisional high of this six-week rally at 13,570 points. In purely mathematical terms, the Dax has the potential of a further 1000 points after it has passed the 13,400 mark.
Varta shares continue to fall
The further price development of the Varta share should be interesting. The share is currently three percent in the red and is traded at 74.18 euros. The trading volume is comparatively low on Tuesday, only 56,000 shares were bought and sold by 2 p.m. Yesterday, Monday, there were over 600,000 papers.
At the start of trading yesterday, the stock slipped 13 percent after a profit warning, but ended the day down just 3.5 percent. The reactions of the analysts to the profit warning gave no reason for an entry. Alsterresearch was the only analysis company out of three who reacted on Monday with a “buy” assessment. But the price target was lowered from 100 to 83 euros. Warburg lowered the target from EUR 95 to EUR 65.50 and recommended “sell”, Hauck Aufhäuser lowered its price target from EUR 84 to EUR 64 and also rated Varta as “sell”.
Due to the high trading volume, it was assumed that some short sellers bought back shares. Because hedge funds use so-called short sales for their short bets. You can either bet directly on falling prices or hedge against price risks. To do this, hedge funds borrow shares for a fee and sell them immediately in the expectation that they can buy the shares back at a lower price before the return date. The difference between the sell and buy price is your profit.
But the assumption is wrong. The hedge funds were on the sell side. Apparently they are expecting further price losses, although the paper has already lost a third of its value since the beginning of the year.
According to the latest data from the Federal Gazette, the short sale rate rose by 0.24 percentage points to 6.89 percent on Monday. Two hedge funds borrowed about 97,000 shares and pushed the short ratio higher with the sale on Monday. The positions are only published in the Federal Gazette when they reach the threshold of 0.5 percent of freely tradable shares.
Current data from S3 Partners is not yet available. The US company recently published almost four times as many short bets against Varta as previously known.
Look at individual values
Pfeiffer Vacuum: After record revenues in the first half of the year, the management board of the vacuum pump manufacturer has confirmed its targets for 2022, but expects growth to slow down over the course of the year. Sales volume is expected to decrease in the second half of 2022 compared to the first half due to increasing loads and some disruptions along the supply chain. The stock loses 6.1 percent.
Delivery Hero: Investors grab after a stock upgrade. The titles are up 1.8 percent and are traded at EUR 48.68. Analysts at JP Morgan upgraded the food delivery service to overweight from previously neutral and raised the target price to $65 from previously $32.
SiemensEnergy: The even further lowered goals of the wind turbine manufacturer Siemens Gamesa are also causing problems for the parent company. The titles give way two percent. With regard to the wind power subsidiary, one trader cited “persistently underground targets” and a “catastrophic outlook for the coming year as well”. Siemens Energy will present quarterly figures next Monday.
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