Dusseldorf The leading German index has climbed almost 1350 points or more than eleven percent since its low for the year at the end of September. That’s why weak trading days like today’s Thursday shouldn’t come as a surprise.
With its decision, the ECB caused the share price to jump by 100 points. Before the decision, the leading index was still at 13,062 points. The central bankers raised the key interest rate by 0.75 percentage points to two percent. That was priced into the market.
Accordingly, the analysts at Landesbank Helaba expected in advance that the ECB’s decision would have hardly any negative impact. “Since the technical situation of the Dax has also improved, we believe there is a possibility of further price gains,” write the capital market experts in their morning comment.
The euro, on the other hand, slipped after the interest rate decision and is currently at $1,0000. The day before, it had broken above dollar parity for the first time in a month. The euro has appreciated by around 1.6 percent since the beginning of the week. Investors bought bonds on the European bond markets after the interest rate hike by the European Central Bank. The yield on ten-year Bunds fell to 2.077 percent.
The coming trading days will probably decide whether this bear market rally will result in a sustainable trend reversal or not.
With sustainable prices above 13,350 points, the leading German index would initially abandon its downward trend since the beginning of the year. But that would not be new: During the bear market rally from May to early June, the stock market barometer was able to overcome the line formed at the time, which was formed from the falling daily highs. But this phase was short-lived. The subsequent relapse into the downward trend had a trend-confirming effect and led to new lows for the year.
The 200-day line, which is currently listed at 13,715 points, is more important for further development. Since the start of the price slide at the beginning of the year, the stock exchange barometer has not been able to overcome this average line. A look at past crashes such as the financial and corona crises as well as weak stock market years like 2018 also shows that after overcoming this line there was a sustainable trend reversal.
There are also many other resistances between the downtrend and the 200-day line, including the September high of 13,564 points in 2022.
Professionals are reluctant to take profits
Apparently there is fear among domestic institutional investors: namely, that they will miss out on further price gains. This is what behavioral economist Joachim Goldberg says after evaluating the Frankfurt Stock Exchange survey. “The fear of missing out on a further, clear upward movement (in technical jargon “Fomo”, “Fear of missing out”) could be greater than the desire to realize the profits that have been made so far,” says the capital market expert.
Goldberg is amazed that the professionals haven’t taken more profits after the significant price increases of the past few days. He suspects that the positions are not particularly large.
In his opinion, the local professionals are waiting for the return of long-term capital flows to the Dax. According to the Bank of America survey last week, the very high cash ratio of international fund managers provides a large reservoir for long-term investors to buy shares.
The fact that foreign investors are likely to have already bought a great deal can be seen from the rising euro exchange rate. If you compare the charts for the euro/dollar and the Dax, you will notice that both asset classes hit their low for the year on September 28 and have been climbing ever since. This inflow of capital towards Europe suggests that it was mainly foreign investors who bought German shares.
The fact that foreigners are the first to take advantage of the opportunities on other capital markets is no surprise, but a rule that probably applies to all asset classes and all countries. For example, after the collapse of the US real estate market in the course of the financial crisis, it was foreigners who first invested in this market again.
Look at individual values
Software Stocks: The figures from the software companies Nemetschek and Software AG burden the entire industry. The European technology index also lost 1.4 percent. Although the growth rate of the Munich construction and media software provider Nemetschek hardly slowed down in the third quarter despite the downward trend in the construction industry, the share slipped 7.1 percent. The Software AG paper loses 2.5 percent. The titles of Bechtle and Suse each lose more than three percent.
MTU: The Munich-based engine specialist has increased sales and earnings in the first nine months and is slightly raising its forecast for 2022 as a whole. However, the share loses 2.2 percent of its value.
The figures of the Dax company show: The deep crisis in the aviation industry, which was triggered by the pandemic, is over. People are flying again, the airlines are investing in new jets. Lufthansa also presented good figures on Thursday. In addition, the high climate requirements of the EU Commission are driving demand in civil aircraft construction. Things are now looking up so much that many suppliers can hardly keep up with recruiting the necessary staff.
kion: Rising costs, disruptions in supply chains and economic uncertainties resulted in the forklift manufacturer making a loss in the third quarter. The stock is only down 0.5 percent. Because the board now wants to counteract this with cost reductions.
Befesa: The German-Spanish metal recycler increased sales and profits in the third quarter thanks to good capacity utilization at its plants. The company, which is listed in the MDax, is expanding in the USA and China and announced in July that it would invest 500 million euros in growth projects. The stock is down 0.2 percent.
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