Frankfurt The prospect that gas could soon flow back to Europe through the Nord Stream 1 pipeline caused an unexpected jump in the German stock market. The Dax closed 2.7 percent or 349 points higher at 13,308 points on Tuesday.
In the late afternoon, the leading index had gained 250 points within a few minutes. The interim high of 13,351 points is slightly higher than the closing level. There are therefore more than 500 points between the daily high and the daily low.
The Dax was the fourth day in a row with profits from trading. That hasn’t happened for several weeks. In the past few days, the leading index had already risen by 3.5 percent.
In the past few days and weeks, however, doubts have arisen as to whether this is happening. A sudden end to Russian gas supplies would have caused major upheavals in Europe and likely caused stock markets to collapse further. In this respect, market participants are reacting with relief to the latest developments, even if there is no confirmation of this yet.
As on the previous day, cyclical stocks were among the favorites on the stock market. Adidas, Covestro and BASF led the list of winners. Banks and automotive suppliers were also in demand. Due to the media report, Uniper shares jumped ten percent in the MDax small-cap index.
The values of the utilities Eon and RWE were also clearly in the profit zone. The background is the French state’s takeover bid for the domestic utility EDF, which caused the share price to jump by 15 percent in Paris.
How is the ECB reacting?
There were also new signals on Tuesday from the monetary policy side: the European Central Bank (ECB) could raise interest rates more than expected at its meeting next Thursday. The news agencies Reuters and Bloomberg, citing insiders, report that an increase of 50 basis points is also possible. So far, an increase of 25 basis points was considered agreed.
This pushed the yield on two-year German bonds, which reacts to short-term interest rate expectations, to their highest level in over two weeks. The euro rallied as high as $1.0253 after last week falling below par for the first time since 2002.
In their Tuesday assessment of the situation, the analysts at Metzler Capital Markets risked a positive outlook for the market as a whole. At the beginning of the week, investors were probably confident that the worst was behind them.
New monetary policy stimulus from China, short-term hopes for more oil from Saudi Arabia and speculation about central banks that are no longer quite as aggressive would have caused risky assets to rise. “Should the US reporting season also give its blessing, nothing stands in the way of a small summer rally,” according to the Metzler experts.
They also draw their confidence from the different behavior of institutional and private investors in Germany. As was the case in March 2020, the pandemic stock market crash, institutional investors would be significantly more confident, while private individuals would remain cautious. “A positive signal, because the professionals are often much more accurate with their assessment of the situation,” say the Metzler experts. After the crash in March 2020, prices quickly rose again.
Bernd Meyer, on the other hand, is rather skeptical about the situation. According to the chief investment strategist for asset management at Berenberg, analysts are still a long way from factoring a significant economic slowdown into their earnings estimates. “With the reporting season now underway for the second quarter, however, there should be more significant downward adjustments,” predicts the expert.
“The momentum in the Dax is still negative.“
(Photo: Getty Images; Per-Anders Pettersson)
Eduard Baitinger, Head of Asset Structuring at the Feri Group, is much clearer. He expects a recession because the global economy has already been slowed down noticeably by tightening monetary policy. The inflation forecasts did not allow for an easing of these. “In this scenario, a timely turnaround on the markets is unlikely, and at least one further wave of sell-offs is to be expected,” believes the Feri man.
In an emergency, there would even be a risk of a severe global recession caused by severe economic imbalances. The trigger could be the global indebtedness of companies or states, perhaps also the bloated Chinese real estate market. “In this scenario, the negative trend on the stock markets would last at least until the end of the year,” says Baitinger.
The experts at the Italian asset manager Plenisfer Investments think similarly. Controlling inflation is difficult for central banks. In case of doubt, “the US Federal Reserve will give priority to fighting inflation over defending the financial markets,” it says. In plain language, this means that the central bank will pay little heed to Wall Street. And the European stock markets are also burdened.
The influence of commodity prices
The strategists at the Californian hedge fund Clocktower are venturing a completely different and positive mind game. The experts are starting with the most important energy commodity: “The geopolitical risk premium in the oil price could disappear quickly if Russia declares its mission in the Donbass to be complete and the war in the east stops.” The US Federal Reserve could then abandon its aggressive tightening of monetary policy.
An economic slowdown and a stabilization of energy prices are already underway. Inflation has peaked. Together with a then less aggressive central bank policy, the result would be clear: “This is bullish for risky assets.” In the process, the Clocktower experts expect an end to the dollar bull market and a strengthening euro.
Some analysts are also expecting inflation to flatten out because of the partly collapsing commodity prices. Robert Rethfeld from Wellenreiter Invest points out that iron ore currently costs less than half as much as it did at its peak a little over a year ago. The prices for shipping goods such as iron ore, coal or wheat were about three times the high of a year ago.
Look at individual values
Fraport: Investors regain more confidence in the airport operator. In the afternoon, the share advanced to one of the strongest values in the MDax with a plus of 4.2 percent.
Deutsche Bank: According to traders, the above-mentioned speculation about a more significant rate hike by the ECB on Thursday is the reason for the price gains in bank shares. Deutsche Bank gained 4.5 percent, Commerzbank 6.5 percent. Bank stocks were already among the strongest the day before.
UnitedInternet: The share price of the Internet service provider has meanwhile fallen by around one percent. According to traders, the background is the downgrade by Oddo BHF. Due to the general market development, the shares later turned positive and closed 0.8 percent higher.
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