2023/02/06 (164.027) Technical Analysis

DAX Future Stay All Week Above 15000 Points Again!
Better Than Expected – But The Year 2023 Has Only Just Begun
Nevertheless, We Remain Long In The DAX Future – Hopefully The Whole Year

Losses Due To Interest Rate Concerns And Profit-Taking

Rekindled interest rate concerns gave the Dax a weak start to the week on Monday. In addition, some investors cashed in after the strong run of the last few weeks. The leading German index was down 0.91 percent in the afternoon at 15,335.87 points. The MDax for medium-sized companies fell by 1.52 percent to 29,326.81 points, and the leading eurozone index, the EuroStoxx, lost 1.29 percent to 4,203.23 points.

The experts at the Swiss bank UBS spoke of a breather after the price jump on Thursday. On Friday, the Dax had put away the very robust US job market report comparatively well. But now investors are taking profits across the board, wrote expert Andreas Lipkow. The authors of the market letter “Bernecker Daily” stated that the market was overbought, which means that it ran too hot. Since the beginning of the year, the Dax has still increased by almost ten percent.

The Nasdaq, a New York technology exchange that had performed even better, had already gone down significantly before the weekend, and further losses are imminent on Monday. The extremely strong labor market data from the United States have underpinned the assessment that the US Federal Reserve will continue its rate hike course to a level of more than five percent, according to the experts at Credit Suisse. Technology stocks are considered to be particularly sensitive to rising interest rates.

After the publication of business figures, the focus on the German market was on the Aurubis copper group, whose share lost four percent in the MDax. In view of the higher prices for their products, the Hamburg company is now more optimistic for the current financial year and sees operating profit before tax at the upper end of its target range. Although this had fallen in the past quarter, it was still well above the value of two years ago and the average analyst estimate. However, some investors may have hoped for a more optimistic outlook, commented one stockbroker. He saw profit taking after the stock’s very good run.

Index neighbor Carl Zeiss Meditec recently fell by 1.9 percent. Here, a confirmed buy recommendation from Hauck & Aufhäuser helped cushion the canceled buy vote of the private bank Berenberg somewhat.

Some technology and Internet stocks were also sold in the wake of the Nasdaq: After a good run in the past few weeks, the online fashion retailer Zalando and the chip company Infineon were among the biggest Dax losers with discounts of 4.6 and 1.4 percent. The online broker Flatexdegiro and Shop Apotheke showed a similar picture in the SDax small-cap index.

Real estate stocks, which have also been strong and interest-sensitive since the beginning of the year, had already suffered from the US job market report on Friday and are now falling further: Vonovia lost 2.8 percent in the Dax, and its industry colleagues Aroundtown, TAG Immobilien and Grand City Properties were in the MDax and SDax and Patrizia Immobilien under pressure.

In contrast, the rally at SDax leader Deutz continued: With a plus of 4.3 percent to 5.40 euros, the shares of the engine manufacturer expanded their profits to 33 percent in the young year. Analyst Hans-Joachim Heimbürger from Kepler Cheuvreux increased his price target to 7 euros. He expects strong results for the past year in mid-March. He also massively increased his estimates for 2023 because he is calculating with a less severe recession scenario than before. It also takes into account the capital increase to finance the value-enhancing cooperation with Daimler Truck. The ratings in the industry as a whole have also increased, according to the expert.

Bayer shares were also sought after after initial difficulties: They gained 3.3 percent as the best value in the Dax. According to “Handelsblatt”, the activist investor Bluebell is gathering allies to push through his demands for changes at the pharmaceutical and agrochemical company.

Stock Market Party After Interest Rate Decision:
ECB “Less Restrictive Than Expected”! Have Interest Rates Become Obsolete As A Market Driver?

I think no – but more on that elsewhere. Let’s stay with today, with the Dax – and the ECB interest rate decisions last week. Because the European Central Bank is sticking to the tight interest rate policy that has now been expected. The market reaction to the rate hike is positive. What is now important for the markets – in this case EUR and or also DAX? The preservation of a restrictive monetary policy! What else!? No quest about it?!

Christine Lagarde, President of the European Central Bank (ECB), is sticking to her tight interest rate policy. Last Thursday, Lagarde announced that the ECB would raise interest rates by a further 0.5 percentage points to a total of three percent – and that this would not be the last rate hike.

In March, the central bank wants to add another 0.5 percentage points. The reason: Especially compared to the US Federal Reserve (Fed), there is still “ground to be made up,” says Lagarde. The Fed hiked rates much faster than the ECB last year. The key interest rate in the USA is currently in a range of 4.5 to 4.75 percent. EURUSD has gotten cold feet since then though! Apparently the foreign exchange market does not (yet) believe the head of the ECB!? And or the majority of foreign exchange market players have already priced in interest rate cuts by the FED?!

Anyway – I don’t know! “In the press conference, the tenor was much less restrictive than expected and than it was in December 2022,” says Gabriele Foà, portfolio manager at Algebris Investments. “Improving data and the consistency of core inflation were given less emphasis than in previous sessions.”

Investors have not been deterred by the prospect of further interest rate hikes, quite the opposite. There was a real party atmosphere on the stock markets on Thursday, reports the “Frankfurter Allgemeine Zeitung” (FAZ). At times, the DAX rose by a good two percent and, at 15,488 points, reached its highest level in almost a year. The Tec-DAX also increased by more than four percent. The upbeat sentiment also impacted bond yields, with the 10-year Bund yield falling 20 basis points on the day.

“We believe that after the recent monetary policy meetings, interest rate hikes will no longer be the main driver of market developments,” says Foà. Admittedly, it is premature to assume that market participants are pricing in interest rate cuts for this year. “The focus will now probably shift to the growth dynamics in the second half of 2023 and the reactions of the central banks,” says the market expert.

The ECB’s tone was in line with that of the US Federal Reserve at its press conference yesterday: Fed Chair Jerome Powell hailed progress on inflation control and explicitly acknowledged that rate hikes are almost complete.

German Industrial Output Falls More Than Estimated

Industrial production in Germany went down sharply by 3.1% month-over-month in December of 2022, following an upwardly revised 0.4% rise in November and worse than market forecasts of a 0.7% decline. This marked the steepest decline in industrial output since March 2022. Output declined for intermediate goods (-5.8%), notably chemical industry (-11.2%) and production was unchanged for capital goods while increased for consumer goods (0.3%). Meanwhile, the output of energy was down 2.3% while that of construction fell 8%. Also, production in the energy-intensive industrial branches decreased by 6.1%, due to high energy prices and negative development in the chemical industry. Compared with December 2021, industrial output shrank 3.9%. Considering full 2022, industrial production was 0.6% lower than in 2021 and 5% below the pre-pandemic year of 2019.

Construction In Germany Shrinks Slightly Less In January

The S&P Global Germany Construction PMI increased to 43.3 in January of 2023 from 41.7 in December, but showed the construction sector remained in contraction territory for a tenth month, amid continued strain on demand from high prices and rising interest rates. The declines in activity and new orders did, however, ease, while building companies were less pessimistic about the year ahead outlook. The rate of input cost inflation meanwhile ticked up for the first time in three months, though it remained close to December’s two-year low. Employment also declined and purchases of building materials and products were cut in line with falling demand.
German Government Bund Yield Bounces Back To 2.2%

The yield on the 10-year German Bund bounced back to above 2.2% after a much stronger-than-expected US jobs report supported bets for more rate hikes and a prolonged period of elevated interest rates in the world’s biggest economy. In Europe, the ECB raised its key rates by 50bps, as widely expected, and signaled another similar hike in March to extend its efforts against soaring inflation in the bloc. Still, policymakers stated the bloc’s economy could contract both this quarter and the next, easing the extent of hawkish bets for the medium term. Additionally, the central bank confirmed that it will reduce its bond portfolio by EUR 15 billion per month during Q2 but refrained from making pledges for the year’s second half.

European Stocks Start The Week Lower

European equity markets fell on Monday, with the pan-European STOXX 600 down 0.8% and the German DAX falling 0.8%, after stronger-than-expected US jobs data dashed market hopes that the Federal Reserve would pause its monetary policy tightening cycle soon. Markets now expect US policymakers to hike rates by 25bps in March and May, leaving the peak at 5.0%, compared with a previous forecast of 4.9%. Elsewhere, ECB Governing Council member Ignazio Visco said on Saturday that the ECB could take a cautious approach to increasing interest rates as short-term inflation expectations had dropped sharply. Investors will also focus on results from major companies, including BP, Unilever and banks such as BNP Paribas, Societe Generale and Credit Suisse. On the data front, German factory orders rebounded 3.2% in December, easily beating expectations of a 2% growth.