Dusseldorf On the German stock market, the 16,000 point mark and just above the record high of 16,290 points remain the most important topic. The Dax was trading at 15,866 points in the morning – down 0.1 percent.
The past two trading days have so far been a classic consolidation. After courses above 15,900 points on Wednesday, the Dax slipped 200 points to 15,706 points.
This development is likely to have been related to the small April expiry date last Friday. At least two points speak for it.
On the one hand, the settlement price of many call and put options of the professionals on the leading German index was around 15,800 points. The derivatives market investors therefore had an interest in the fact that the Dax price for the settlement of these positions was at a level close to this mark around 1 p.m.
And on the other hand, after the expiry of the call and put options, the leading German index rose again by around 200 points, i.e. to the level of last Wednesday. The chances are good again that the leading German index will soon reach the level of 16,000 points. A first indication would be prices above 15,916 points, the previous high for the year.
Professional market participants use such expiration days to speculate about the future development of an index, a share or a bond. On the other hand, the futures and options market serves to hedge the price of securities holdings.
Low willingness to invest
However, the extremely low willingness to invest among domestic private investors, which according to the current Handelsblatt survey Dax-Sentiment is at its lowest level for two years, speaks against further price gains. This means there is a risk of renewed consolidation. That would currently be more of a new buying opportunity than the harbinger of a crash.
Because after five weeks of climbing, a clear setback in the German leading index would not be unusual. The Dax could even slip to around 14,800 points in the next few weeks without jeopardizing the upward movement since the end of September last year. The first sign of a major setback would be prices below 15,700 points.
The large gap to the 200-day line, which is currently at 14,117 points, also calls for caution. The distance to the current Dax listing is around twelve percent and is thus listed at a value at which trend reversals can take place, but do not necessarily have to. The greater this distance, the more likely it is that the Dax price and the average line will converge again.
For comparison: When the Dax reached its low for the year at the end of September 2022, the 200-day moving average was around 13 percent below the quotation at the time. During the Corona crash, however, the difference between the average line and the Dax level was 33 percent when the stock market barometer had reached its lowest level.
Professionals hope for a re-entry
Above all, the behavior of the local and foreign professionals speaks against a crash. According to the survey by the Frankfurt Stock Exchange, domestic institutional investors are only waiting for a significant setback before they can get back on board.
US stock market expert Koch: The tech industry could cause turbulence in the coming week
For behavioral economist Joachim Goldberg, who evaluates the survey, the professionals are probably waiting for courses between 15,350 and 15,400 points to buy again. It is questionable whether the Dax will fall to such a low level.
Of particular note is Bank of America’s significant survey of foreign professionals. Because the more than 200 institutional investors in funds, asset managers, banks and hedge funds sold European shares on a large scale as of early to mid-April. At the same time, the leading German index has not slipped compared to the beginning to mid-March, but has risen slightly.
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In addition, for the past 17 months, the fund managers have held an average of more than five percent of cash in their portfolios in the form of cash or short-term money market paper. A longer period of such high cash ratios only occurred in the 32 months after the dot-com bubble burst in the early 2000s. So there is enough money to get back on board.
And the professionals, in contrast to the private investors, have a problem. If the Dax continues to rise, we will have to get back in, because the performance of their portfolios is measured against the development of indices.
The course of the reporting season will help decide whether the Dax will rise to a new record high or whether it will turn around shortly before. This week, the reporting season is picking up speed in Europe as well.
In the opinion of the capital market expert Thomas Altmann from the fund house QC Partners, investors should not only pay attention to the company results if the sometimes low expectations are met. In addition, the profits should be compared with those from the first quarter of the previous year. “Because declining profits inevitably lead to rising valuations,” explains Altmann. “And especially in the context of the current high interest rates, rising valuations are not without risk.”
Hedge funds bet against US Treasuries
An interesting bet is currently running in the bond market. Hedge funds are more pessimistic than ever about the outlook for US government bonds. In the week ended April 18, they increased their net short positions in the futures market on 10-year Treasuries for the fifth straight week – to an unprecedented 1.29 million contracts, business news agency Bloomberg reports.
“Hedge funds may be anticipating inflation to be more persistent than many market participants currently expect,” said Damien McColough, head of fixed income analytics at Westpac Banking in Sydney. “Apparently, this large short position does not reflect the view that there will be a recession in the near future.”
For the past few weeks, the Treasury yield has moved sideways amid debate over when the Federal Reserve will start cutting interest rates. Hedge funds’ bets on falling Treasury prices will pay off if the US Federal Reserve continues to hike interest rates instead.
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The US 10-year Treasury yield is up nine basis points to 3.56 percent this month, recovering part of the 45 basis point decline in March. But today, Monday, the yield is falling and is trading at 3.54 percent.
The yield on the 10-year bond is still well below that of the 2-year paper. This signals the expectation that a downturn is imminent. However, such hedge funds’ track record of betting on US Treasuries has been mixed, so there is no guarantee that US bond prices will fall again.
Look at the individual values
Software AG: The takeover bid by the financial investor Silver Lake, worth a total of 2.2 billion euros, gave the share the biggest jump in the company’s history. The shares of the Darmstadt-based company rose by almost 50 percent to 29.94 euros in early trading in Frankfurt on Monday. Silver Lake offers 30 euros per share.
The foundation of Software AG co-founder Peter Schnell supports the takeover plans. She wants to sell 25.1 percent of the shares to the financial investor and keep a stake of five percent. Silver Lake, which already indirectly holds nine percent of Software AG shares via a convertible bond, is aiming for a stake of 50 percent plus one share with the current offer.
Among other things, the investor assures Software AG that it will not change anything at the company’s headquarters or locations. The software house should be taken off the stock exchange as soon as possible, but a domination agreement is not necessary. A few weeks ago, Silver Lake bought its data analysis subsidiary Qualtrics from its larger Software AG rival SAP for $7.7 billion.
Salzgitter: The high costs of energy and the climate-friendly conversion of production are putting pressure on profits. However, the result turned out to be better than the market had expected. The Salzgitter share is down 1.6 percent.
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