The trigger was a speech by US Federal Reserve Chairman Jerome Powell, which also resonated at the start of the week. The key message was that the US Federal Reserve sees its top priority in ensuring price stability and, in this context, reducing inflation to its target of two percent. If in doubt, it would also accept a recession for this.
Ulrich Stephan, chief investment strategist at Deutsche Bank, believes that “the Fed could be less rigorous in enforcing its tightening policy than some investors currently expect.” On Monday, the yield on two-year US government bonds reached an annual high of almost 3.489 percent.
“I don’t expect US Treasury yields, particularly short-dated ones, to go down anytime soon,” Stephan said. This is a burden for the stock market.
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Jochen Stanzl, analyst at the online broker CMC Markets, therefore fears that after the quiet summer with an interim rally of 1500 points on the Dax, things could get very uncomfortable again: “In view of the adverse news situation and concerns about a recession in Germany, investors are missing any confidence at the moment and thus the willingness to get into equities on a large scale before the uncertain winter.”
This concern is reinforced by the above-average trading volume on losing days. Both last Monday and Friday, when the Dax lost more than two percent, the trading volume in the Dax was over 65 million shares. For comparison: On Friday of the previous week (August 19), when the Dax reached its interim high of 13,948 points, only 50 million Dax titles were traded.
This underscores the prevailing selling pressure. Because in addition to the central banks and rising interest rates, the focus is also on the sharp rise in gas prices. The Russian exporter Gazprom wants to interrupt gas deliveries via the Nord Stream 1 Baltic Sea pipeline from August 31 for three days due to maintenance work. This fuels fears that the already severely restricted flow of gas from Russia could stop completely if deliveries are not resumed.
Already on Friday, the Dax broke through a psychologically important threshold with the mark of 13,000 points. Here the correction initially stopped after the interim high of over 13,900 points. At the same time, the Dax fell below the moving averages of the last 200 days and the last 50 days (currently at 13,275 and 13,224 points).
Now the next stop is threatening to fall at 12,827 points. The next point of contact would be the support at 12,655 points, below which the low for the year of 12,391 points is already waiting. “In order to take the greatest pressure off the German ‘blue chips’, at least the holding zone at 13,200 points would have to be recaptured, which is currently absolute wishful thinking,” write the chart technicians at HSBC.
Behavior of the VDax indicates further losses
It is interesting that the VDax is currently reacting relatively moderately. The VDax is the so-called fear barometer of the stock exchange and shows the future price fluctuations that professionals expect due to their commitments on the Frankfurt futures exchange Eurex. The higher the VDax is listed, the greater the fluctuations futures traders expect in the next 30 days. Although the VDax has risen, it is only at a value of around 30. That corresponds to nervous trading.
In the past, it was often only values above 50 that signaled panic on the market as the end of longer downward trends. At the end of March, the VDax rose to 48, but obviously that wasn’t enough for a sustainable trend reversal. When the Dax reached a new low for the year in July, the VDax was at 34, well below it.
A possible explanation is that the futures market professionals believed that the worst was over and assumed that the stock market would be calm. But prices may now have to fall significantly lower until panic prevails in the market and a sustainable bottom is reached.
Experience from past trend reversals shows that the highest volatility and the lowest point of a crash do not necessarily have to be on the same day. That was only the case during the Corona crash. At that time, the Dax marked its low point on March 16 with 8255 points, at the same time the VDax reached its previous record high of 93 on that day.
When the technology bubble burst from 2001 to 2003 and during the financial crisis of 2008/2009, however, it took around five months after peak volatility for the Dax to reach its lowest point. However, these Dax turning points were accompanied by VDax values of 50 and were thus well above the current value of 30.
Look at individual values
Bayer: Investors reacted with disappointment to the previous test results for the anticoagulant Asundexian. The shares of the pharmaceutical company fell by 4.9 percent. The drug missed its primary target in terms of effectiveness, commented analyst Charlie Bentley of investment bank Jefferies.
Porsche Holding: The VW group holding Porsche SE led the Dax with a plus of 3.7 percent. Here investors are hoping for news about the IPO of the VW sports car subsidiary Porsche AG.
Encavis and PNE: in the In the capital-intensive area of renewable energies, prices slipped. The titles of wind farm project developers such as Encavis and PNE lost almost eight and 4.5 percent, respectively. Higher interest rates make investments in new projects more expensive.
RWE and Uniper: Utilities were generally on the sell lists, also because discussions about an “excess profit tax” are increasing. Against this background, RWE lost 2.2 percent. The gas levy planned from October should primarily be aimed at companies like Uniper that have gotten into trouble. Uniper shares fell to a record low on Monday, but then turned positive in the evening.
With material from dpa and Reuters.
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