Dax is on a recovery course and defies rising bond yields

Frankfurt The Dax was surprisingly robust on Tuesday. It held up considerably throughout the day and closed with a premium of 0.8 percent at 14,438 points.

After the friendly opening on Wall Street, the leading German index had even risen above the 14,500 point mark. And this despite the fact that there are no signs of relaxation in the Ukraine war and the development on the US bond market calls for caution.

Investors do not yet trust the recovery on the stock exchanges. According to Martin Lück, capital market strategist at the Blackrock fund, the prices on the stock exchanges, which have risen significantly again since March 4, suggest that a majority of capital market participants consider a drastic economic slowdown to be unlikely and that parts of the market want a diplomatic solution in Ukraine, at least for consider possible. But Lück has “some” doubts about that.

For him, there is much to suggest that the situation in Ukraine will get even worse before the war comes to an end: “If that’s the case, the currently rather relaxed state of the market is like the proverbial whistle in the woods.”

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The Dax and other European stock exchanges also processed the statements by US Federal Reserve Chairman Jerome Powell from the previous evening surprisingly well. Powell had declared that he wanted to take rapid countermeasures in the fight against skyrocketing inflation. He also announced a faster increase in key interest rates by more than 0.25 percentage points in the coming meetings.

According to Manishi Raychaudhuri, strategist at BNP Paribas, equity market investors have come to terms with the fact that central banks in developed countries will normalize monetary policy.

Bond yields rise – US yield curve flattens

The bond markets are different. Yields, which were developing in the opposite direction to prices, continued to rise significantly on Tuesday. The yield on the two-year US government bond, which follows the key interest rate particularly closely, was now just under 2.17 percent. The yield on the 10-year US Treasury bond rose to 2.36 percent. .

>> Read about this: Yields rise significantly: “Multiple blows to the neck” for interest-bearing securities

The so-called yield curve has thus become much flatter – the yield difference between two- and ten-year US government bonds is less than 0.2 percentage points. This indicates that investors assess the economic situation worse. At the beginning of the year, the gap was still 0.9 percentage points.

In the past, an inverted yield curve, in which short-term bond yields are higher than longer-term yields, has usually been a harbinger of a recession – although the length of time before the economy actually collapses varies.

Powell also warned that Russia’s war of aggression in Ukraine would have “significant consequences” for the global economy, including US growth. The extent of these effects is currently still “highly uncertain”.

German bonds also under pressure…

There is still no sign of an inverted interest rate curve in Germany, but the bond markets are causing a stir here too. The yield on the ten-year federal bond, which is the focus of most attention, rose above the half a percent mark on Tuesday for the first time in more than three years. The yield on two-year Bunds was down 0.25 percent, but was no longer as clearly in negative territory as it was at the beginning of the year.

… that helps stocks of banks and insurers

Rising interest rates and bond yields on the stock exchange are good for banks and insurers in particular. Banks benefit from the turnaround in interest rates because it makes the lending business more lucrative. For insurers, rising bond yields mean better investment opportunities, which supports prices.

As such, banking and insurance stocks top Tuesday’s list of biggest gainers. In the broad index Stoxx Europe 600, the sub-index for bank stocks was up 2.3 percent in the evening, closely followed by the sub-index for insurers with plus 1.9 percent.

The development was also reflected in the Dax. The Deutsche Bank share was unchallenged at the top of the Dax with a plus of 5.6 percent. The shares of Munich Re and Hannover Re, which has only been listed on the Dax since Monday, rose by two percent.

Oil prices at a glance

The oil price, which stopped rising, also eased the situation for the broader market. A barrel of North Sea Brent for delivery in May cost $114.71 in the evening, 0.8 less than on Monday. In the meantime, the price had even fallen by 1.5 percent.

On Monday, the EU’s considerations of an embargo on Russian oil caused energy prices to rise by more than seven percent. Two weeks ago, a barrel of Brent cost around $139, the highest price since 2008.

However, investors do not trust the current drop in oil prices. “Uncertainty about whether the EU will impose an embargo on Russian oil will continue to occupy the markets,” says Hans Van Cleef, economist at ABN Amro.

Individual values ​​in focus:

Adidas and Puma: After a surprisingly strong quarter for US rival Nike, investors also grabbed Adidas and Puma. However, Puma was able to hold onto its profits better. The Puma share closed with a premium of a good three percent, the Adidas share gained 1.5 percent on balance.

Nemetschek: The share of the building materials software company, which has fallen sharply so far this year, was the best value in the MDax of medium-sized companies with a plus of ten percent. After a good year in 2021, Nemetschek was also optimistic about 2022.

Hornbach Holding: Hornbach Holding shares rose by 2.4 percent. The hardware store chain had record sales of 2.8 billion for the past financial year. However, the Management Board continues to expect burdens, including from price inflation, unstable supply chains and bottlenecks in logistics.

Morphosys: The shares of the biotech company Morphosys slipped by more than nine percent to just over 23 euros and thus brought up the rear in the SDax of the smaller companies. Morphosys presented disappointing numbers on Thursday. Higher costs pushed the company into an operating loss. On Tuesday, the sell-off intensified for the stock, which has lost more than 80 percent since January 2020 after negative analyst comments.

Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.

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