Dusseldorf The Dax held its ground on Wednesday before the US Federal Reserve’s interest rate decision. At the close of trading, the leading German index was 0.1 percent above the previous day’s level at 15,216 points.
The Dax could not keep larger profits from the midday trade and crumbled in late trading in line with the Dow Jones index. After the recent banking turbulence, economists expect the US Federal Reserve to raise interest rates slightly by 0.25 percentage points.
Given the forthcoming US interest rate decision, the chances of gains similar to those of the day before were rather slim this Wednesday. For Thomas Altmann from the investment house QC Partners, “it is quite possible that the first few will soon start taking part of their commitment off the table”.
On the downside, an upside gap served as support, which opened yesterday Tuesday. Such gaps arise when the lowest price of a trading day is above the highest price of the previous day.
Specifically: On Monday last week, the highest price was 14,980 points, on Friday the Dax was not listed below 15,056 points. Such gaps are effectively a re-evaluation of the market because there has been no trading in that range. This gap underscores the importance of the key support zone between 15,000 and 14,800.
Interest rate markets signal rally continuation
However, if today’s rate decision in the US does not trigger any major profit-taking, there is a good chance that the rally will pick up speed again soon.
This can already be seen on the interest rate markets. At the beginning of March, the price of a ten-year US government bond slipped significantly, while the yield climbed to 4.07 percent – a warning signal for the stock markets.
However, Bunds and US government bonds have meanwhile initiated a clear trend reversal, at least temporarily. The yield on a ten-year US government bond has slipped back to 3.60 percent, and bond prices have climbed accordingly. There is much to suggest that this movement will continue.
>> Read also: US investors hold back on interest rate decision
In the opinion of Christoph Mertens from Fürst Fugger Privatbank, this development in bond prices has “resulted in disproportionate profits, especially with longer maturities in some portfolios”. As a result, the focus is now back on the stock market. “If interest rates continue to fall and the economy remains robust, then there is a high chance of a further significant recovery in the stock markets, which may last until May,” says the capital market expert.
Because in April there will be no further stimulus from the central banks. Although investors are still skeptical after the unrest in the banking sector, this is likely to subside shortly. And: Many market participants had high cash positions.
Pros have a lot of money to get started
International fund managers also have a high cash position. That shows the current Bank of America survey of 212 portfolio managers with assets under management of almost $550 billion.
According to the BofA survey, the average cash ratio in their portfolios has risen from 5.2 to 5.5 percent. Cash holdings have now been above five percent for 15 months. This is the longest period of above-average cash ratios since the dot-com bubble burst.
At the same time, sentiment has fallen near 20-year lows and US stocks have become even less popular. High cash ratio and bad mood: There can hardly be better news for the stock markets. At least a crash on the global stock markets has become very unlikely.
Especially since a look at the major US indices shows a constructive development. All three major stock market barometers – Dow Jones, Nasdaq and S&P 500 – have meanwhile climbed back above the 200-day moving average, which is primarily observed by long-term investors. If this trend continues, international fund managers will have to buy. In contrast to private investors, professionals cannot stand idly by when prices rise and the performance of their managed portfolio lags behind.
The US Federal Reserve cannot afford to make any mistakes
The US Federal Reserve certainly faces one of its most difficult tasks in a long time this Wednesday. She can’t afford to make any mistakes. Another drastic rate hike is likely to do additional damage to the already stressed banks. A pause in interest rates, on the other hand, would probably be seen as a crisis signal. The majority of analysts assume that the central bank is most likely to succeed with a flawless performance with a rate hike of 25 basis points.
Look at the individual values
Real estate values: Vonovia shares in the Dax plunged by up to 4.6 percent to EUR 17.71 after the analysts at Morgan Stanley downgraded the title to “underweight” from “equal weight”. Aroundtown gets even worse in the MDax and loses 7.5 percent to a record low of 1.70 euros.
LEG and TAG Immobilien fall by up to 3.3 percent. According to the experts at Morgan Stanley, the risks that companies will have to tap the capital markets are increasing throughout the European real estate sector.
eon: After an upgrade by JP Morgan, investors are grabbing the stock. The titles gain 1.4 percent. Rating has been raised to Overweight from Neutral. The analysts raised the target price to EUR 13 from the previous EUR 10.50. On Tuesday, the papers closed at EUR 10.85.
Varta: The papers were temporarily up 4.4 percent, but are currently down 0.8 percent again. The ailing battery manufacturer gets the capital injection of 51 million euros from its major shareholder, which the banks demanded, but this apparently did not help the course either.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.