Dusseldorf The German stock market only really gets going after the close of trading this Wednesday. Then the US Federal Reserve will probably raise interest rates by 25 basis points and present an interest rate outlook that has the potential to end the three-week sideways phase in the German benchmark index.
Investors now seem to be looking forward to the decision: the Dax closes 0.4 percent up at 15,180 points. However, the leading German index is still in a sideways range, extending from 14,906 points on the bottom and 15,270 points on the top.
According to chart technology, a sustained breakout of this range should point the way for the development of the stock markets in the coming weeks and months. Because a sustained slide below the 14,800 point mark could result in a longer period of consolidation – possibly even a correction, a drop of at least ten percent. That would be a slide up to 13,700 points.
The high buying interest below 15,000 points was interesting in the past two days. The price slide below this round mark took only a few minutes.
Overall, the Dax climbed 8.6 percent in the first month of the 2023 stock market year. According to statistics, it is one of the best Januarys in Dax history.
According to calculations by Jörg Scherer, Head of Technical Analysis at HSBC Germany, the following rule applies: the higher the return at the beginning of the year, the higher the performance in February. If the German standard values rose by more than three percent in January, then the average value development in February was 2.72 percent. The extremely friendly start to the year could therefore also provide a tailwind for the coming weeks.
>> Read here: ECB could hike rates faster than the Fed
In the meantime, developments in this country and on the other side of the Atlantic have changed. In December and the first half of January, the stock exchanges in the euro zone clearly outperformed the Wall Street indices. In the second half of January, on the other hand, the US selection index Nasdaq 100 developed almost five percentage points better than the Dax.
Capital market expert Thomas Altmann from the investment house QC Partners justifies the current outperformance of Wall Street with the predominantly positive course of the US reporting season so far and with the expectation of an earlier end to interest rate hikes in the USA. Because according to the Chicago futures exchange’s Fed Watch tool, a clear majority of professionals no longer expect any major rate hikes, a maximum of five percent and rate cuts by the end of the year.
If stock market history repeats itself, there is a risk of a price slide in the coming days. Because the expectations of the professionals were similar before the last meeting in December, but US Federal Reserve Chairman Jerome Powell brought the stock market rally to an abrupt end at the time.
The Dax then slipped around 600 points within four days. Altmann considers it quite possible that this scenario will repeat itself.
But stock market history rarely repeats itself so simply. In contrast to the December meeting, many investors have now hedged against falling prices. In mid-December, many investors were still speculating that prices would continue to rise. For example, the Euwax sentiment on the Stuttgart Stock Exchange is currently at its lowest level since the corona crash in 2020.
This means that the proportion of put products that investors use to protect themselves against falling prices is currently at its highest level in almost two years.
Wall Street pundit Koch: All eyes on Fed decision
In contrast to December, investors have thus set up a safety net that should at least protect against a rapid fall in prices. In addition to the low of the almost three-week sideways phase with 14,906 points, the focus is primarily on the 14,800 point mark as important technical support. The stock exchange history does not repeat itself, but it rhymes, is the appropriate stock exchange rule. Because investors position themselves differently the second time around.
euros and oil
The exchange rate of the euro rose on Wednesday before the interest rate decision by the US Federal Reserve. In the late afternoon, the common currency cost 1.0910 US dollars, a good half a cent more than the daily low. The European Central Bank set the reference rate at 1.0894 (Tuesday: 1.0833) dollars. The dollar thus cost 0.9179 (0.9231) euros.
Oil prices have recently fallen. The North Sea variety Brent fell by 1.1 percent to $84.57 per barrel, while US light oil WTI fell by 0.8 percent to $78.26. In a short virtual meeting in the afternoon, a committee of the Opec+ countries waved the current production policy of the oil producer group through and allowed the production cuts agreed last year to go into effect.
Software stocks have fallen sharply
Software vendor stocks tumbled. Teamviewer shares are hit by a downgrade. The papers of the specialist for remote maintenance software fell in the meantime by 9.7 percent to 11.36 euros and were still 5.5 percent in the red at the close of trading in Frankfurt. The analysts at JP Morgan downgraded the title to “underweight” from previously “neutral” and lowered the price target to eleven from previously twelve euros.
Because of the bleak economic prospects, Software AG is abandoning its previous targets. The figures for the past quarter and for 2022, which were in line with expectations, did not change that. The stock then slipped 14.7 percent. In the course of this, Cancom’s titles also lost.
Look at other individual values
Hanover Re: According to the figures, the shares have given way five percent. The global number three in the industry increased profits by 14 percent to EUR 1.41 billion in the past year and, as expected, reached the lower end of their own forecast.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.