Dax is looking for a direction after the ECB interest rate decision – U-turn among investment professionals is likely to weigh on the market

Dusseldorf , After the initial celebrations on the German stock market over the rescue package for Credit Suisse, disillusionment is setting in. The ECB’s decision to raise interest rates by a further 0.5 percentage points initially caused the Dax to slide 0.4 percent into the red. But now the market is interpreting the interest rate decision, which can also be seen from the large price fluctuations of 240 points since the interest rate decision. On Thursday afternoon, the leading German index was up 0.6 percent again and was trading at 14,817 points. At today’s daily high, which is 14,990 points, there was still a celebratory mood.

The German stock exchange barometer is again above the important mark of 14,800 points, yesterday’s slide below was – so far – not sustainable. Martin Utschneider, technical analyst at private bank Donner & Reuschel, is certain: “Today will show whether this break will also be sustainable.”

For the capital market expert Thomas Altmann from the investment house QC Partner, today’s decision has something positive for the markets. “The most significant change in today’s ECB statement is the abandonment of the prospect of further interest rate increases,” he explains. The central bankers are thus opening the door wide for an imminent slowdown or even a pause. “Should the banking crisis continue to worsen, this could actually have been the last interest rate step in the current cycle of increases,” says Altmann.

So far, the leading German index has been an adventurous roller coaster ride. If the Dax recovers at the close of trading, it would be the sixth change of direction in a row in which positive and negative sessions have alternated. Even on today’s trading day, the difference between the daily high and low is already 330 points.

With yesterday’s price slide down to 14,703 points, the consolidation has expanded significantly, the minus compared to the high for the year on Thursday last week is around 6.5 percent at its peak. That’s a decent setback, as experienced stockbrokers would say.

A renewed slide below the mark of 14,800 points should probably end this roller coaster ride and set a new trend for the Dax: permanently downwards. To prevent this from happening, the US stock exchanges also have to play their part.

Yesterday, Wednesday, before the announcement of the Swiss central bank’s rescue package, they closed in the red, at least the Dow Jones and S&P 500 indices. If these two US stock market barometers do not quickly rise above their 200-day line, the Dax is also threatened with further trouble.

Bank stocks on course for recovery

Bank share prices currently have the greatest influence on the market as a whole. They are going on a recovery course this Thursday. The European sector index Stoxx Banks with its 22 members rose by four percent. As recently as Wednesday, the index had slipped 8.4 percent, down over 16 percent week-on-week.

Credit Suisse shares, which slipped as much as 31 percent on Wednesday, climbed more than 30 percent today, Thursday. However, the paper cannot be traded on the German market. The shares of Deutsche Bank and Commerzbank also increase by 5.2 and 3.9 percent.

The development of credit default insurance, known in technical jargon as credit default swaps (CDS), shows how dramatic the situation was. With these, professional investors can protect themselves against the insolvency of the issuer of the bond.

On Wednesday, that figure rose to as much as 12.8 percent a year for a five-year bond. The value has never been higher. A high percentage given a five-year Credit Suisse bond that had recently returned just over 3 percent annually.

However, the CDS values ​​for the two major German banks have risen only slightly, which is good news. At Deutsche Bank, professional investors had to pay 1.24 percent annually to protect themselves against insolvency, at Commerzbank it was 0.8 percent.

A report by the business news service Bloomberg shows which problems Credit Suisse was still facing. Major French bank BNP Paribas has informed its clients that it will no longer accept requests to underwrite its derivatives contracts when Credit Suisse is the counterparty. BNP Paribas is a big player in the derivatives market, this approach could have triggered a chain reaction that would have further burdened the major Swiss bank.

As a reminder: During the financial crisis, German savings banks had sold guarantee certificates from the US bank Lehmann Brothers. The fact that the paper bears an issuer risk was not only realized by the vast majority of investors until Lehman Brothers actually filed for bankruptcy, but also by many savings bank board members and consultants.

With its rescue package, the Swiss National Bank, like the US Federal Reserve, is sending a strong signal. The central banks obviously want to end the current crisis before it can infect other institutions.

Investment professionals used the price slide to get started

The results of the current sentiment survey by the Frankfurt Stock Exchange are a burden for the Dax. Because many pessimists among the professional investors surveyed not only closed their short positions and thus probably took profits, but at the same time also bet on rising prices again. Sentiment has risen to its highest level for the whole year, which is a contraindicator according to sentiment analysis.

Financial expert Halver: “The central banks must intervene now”

Joachim Goldberg, who evaluates the survey, expects that these buyers will not remain loyal to the Dax for too long in the event of a further recovery. They will probably sell their new positions at a profit between 15,300 and 15,350 points. However, the new buyers should quickly pull the ripcord even if the Dax falls further. “So what still looks like a comparatively harmless correction – in the big picture – could then expand into a larger downward movement,” says the behavioral economist.

Look at the individual values

Morphosys: The biotech has trimmed its loss significantly over the past year. In 2022 there was still an operating loss of almost 221 million euros after a loss of a good 508 million euros a year ago. The group did not issue a profit forecast. The share rose by 4.7 percent, in the meantime the paper was even twelve percent up.

Elmos: The chip manufacturer, which mainly produces for the automotive industry, wants its shareholders to participate in the increase in profits with a higher dividend. They should receive 0.75 euros per share, ten cents more than in the previous year. After the record sales and profits last year, the Dortmund company has announced further growth for 2023. The stock rose 0.7 percent.

SiemensEnergy: The energy technology group completed a capital increase on Wednesday evening. The issue of 72.7 million new shares serves to partially finance further shares in the wind power subsidiary Siemens Gamesa and brought in 1.26 billion euros before deduction of costs and commissions. The shares of the Munich company rose by 2.3 percent and are among the biggest winners in the Dax.

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