Düsseldorf A few hours before the US Federal Reserve’s interest rate decision, the leading German index starts a renewed attempt to recover. Dax rose 1.9 percent in the afternoon and traded at 13,556 points, an increase of over 250 points.
But today, Wednesday, there is news that is being received positively in the market. The Governing Council of the European Central Bank will hold a special meeting on Wednesday. According to the spokesman, the current market conditions will be discussed at the meeting. In recent days, interest rates in the capital markets have risen markedly, while sentiment in the stock market has deteriorated markedly.
This created a dilemma for the ECB. On the one hand, it must fight inflation. On the other hand, it must see what high interest rates it can expect from heavily indebted countries such as Greece.
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The capital markets reacted quickly to this news. Before this report was published around noon. 7.50, Dax was still trading from the floor to around 13,300 points and is now around 130 points higher. The euro rose to an intraday high of $ 1.0493 after the meeting was announced. And bond market interest rates fell sharply. The yield gap on government bonds from Germany and Italy had recently widened.
What price drop will the US Federal Reserve tolerate?
0.5 or 0.75 percentage points? This is currently the crucial issue in the capital market. What is meant is the amount by which the US Federal Reserve intends to raise interest rates in this country on Wednesday after the market closes. 0.75 percentage points are priced in, “only” 0.5 would be a pleasant surprise. And for the next interest rate meeting at the end of July, stock exchange traders expect an additional 0.75 per cent.
The subsequent press conference with Governor Jerome Powell was to be similarly exciting. Will he also comment on the large losses in the stock market? What price drop will the Fed tolerate? After all, the US sample index S&P 500 is now officially on the bear market. Dax also lost about 1400 points within a week.
The recent trading days have already had the features of a small capitulation. About 90 million shares were traded, especially during the sessions with the big losses, such as Friday and Monday. In the last four weeks, the average amount per today, however, under 70 million papers.
For Thomas Altmann from the investment house QC Partners, the markets are trying to bottom out. However, the capital market expert qualifies: “At present, no one can say whether a bottom has really been found, or whether we are just experiencing a respite on the way down”.
The current situation in the German stock market shows how little current valuations play a role, but rather future valuations, chart technology or investor sentiment. And when it comes to the question “Are stocks currently available or cheap?”, Another phrase always plays a crucial role: “Expensive or cheap compared to what?”.
Dax rating at the 2012 level
Because after the high price losses, the historical price-earnings ratio for Dax is as low as it was at the end of 2012, Altmann calculated. However, the low valuation hardly attracts buyers. Because the interest rate environment is different.
Ten years ago, the yield on a ten-year US government bond was 1.64 percent, now it is 3.36 percent. The yield on a ten-year federal bond also rose 1.57 percent ten years ago, with a current yield of 1.77 percent before the extraordinary ECB Council meeting was announced. Most recently, the interest rate fell to 1.64 per cent. At the end of May this year, the figure was 1.04 percent.
“On the one hand, bonds are becoming increasingly competitive for equities,” Altmann explains. “On the other hand, higher interest rates will put pressure on future profits.” Both of these lead to investors wanting to see more favorable valuations than before.
As a result of the announced ECB meeting, investors are again buying government bonds from southern European countries. By contrast, interest rates on ten-year paper from Italy fell by more than 20 basis points to 3.99 percent. The yield on a Greek government bond with a ten-year maturity was also 4.7 percent before the report was published, it is currently only 4.56 percent.
Look at the individual values
Drägerværk: The shares lose 1.8 per cent. Traders point to bad numbers from competitor Getinge. The Swedish group downgraded its forecast for net revenue for 2022.
Gerresheimer: The newspapers increase by 11.9 per cent. Traders are pointing to revived takeover fantasies after the Bloomberg agency reported that financial investor Bain had recently turned down an offer. The price offered was too low for the packaging manufacturer. “The price was not mentioned, but the report brings lingering fantasies to stocks that have been a bit forgotten lately,” one trader said.
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