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Dax Rises Significantly – Extraordinary ECB Council Meeting Inspires Markets

Dusseldorf A few hours after the US Federal Reserve’s rate decision, the main German index is starting a new recovery attempt. The Dax gained 1.9% in the afternoon and is trading at 13,556 points, an increase of over 250 points.

But today, Wednesday, there is news that is positively received by the market. The Governing Council of the European Central Bank will hold an extraordinary meeting this Wednesday. According to the spokesperson, current market conditions will be discussed during the meeting. In recent days, interest rates on the capital markets have risen significantly, while sentiment on the equity market has deteriorated significantly.

This created a dilemma for the ECB. On the one hand, it has to fight inflation. On the other hand, he has to see what high interest rate he can expect from heavily indebted countries like Greece.

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Capital markets reacted quickly to this news. Before this report was released around 7:50 am, the Dax was still trading from zero to around 13,300 points and is now around 130 points higher. The euro rose to an intraday high of $ 1.0493 following the announcement of the meeting. And bond market yields fell significantly. The yield gap on German and Italian government bonds has recently widened.

What price drop will the US Federal Reserve tolerate?

0.5 or 0.75 percentage points? This is currently the most important question on the capital market. What is meant is the amount by which the US Federal Reserve intends to raise interest rates in this country Wednesday after the market closes. 0.75 percentage points are priced, “only” 0.5 would be a pleasant surprise. And for the next interest rate meeting at the end of July, equity market participants are expecting another 0.75%.

The subsequent press conference with central bank chief Jerome Powell should be just as exciting. Will he also comment on the heavy losses on the stock exchange? What price drop will the Fed tolerate? After all, the US S&P 500 Selection Index is now officially in the bear market. The Dax also lost around 1400 points in one week.

The last few days of negotiations have already had traits of a small capitulation. Around 90 million shares were traded, mostly in the big-loss sessions, such as Friday and Monday. In the past four weeks, however, the average daily volume has been less than 70 million newspapers.

For Thomas Altmann of investment house QC Partners, the markets are looking to bottom out. However, the capital market expert qualifies: “No one can say at the moment if a fund has really been found or if we are just experiencing a lull on the way down.”

The current situation on the German stock market shows how little current valuations play, but rather future valuations, charting technology or investor sentiment. And when it comes to the question “Are stocks currently available or cheap?”, A second sentence always plays a decisive role: “Expensive or cheap versus what?”.

Dax classification at 2012 level

Because after the high price losses, the historical price-to-earnings ratio for the Dax is as low as it was last time in 2012, Altmann calculated. However, the low valuation hardly attracts buyers. Because the interest rate environment is different.

Ten years ago, the interest rate on a ten-year US Treasury note was 1.64 percent, now it’s 3.36 percent. The yield on a 10-year federal bond prior to the announcement of the extraordinary ECB board meeting was also 1.77 percent, above the 1.57 percent level a decade ago. More recently, the yield fell to 1.64%. At the end of May this year, the figure was 1.04 percent.

“On the one hand, bonds are becoming increasingly competitive for equities,” explains Altmann. “On the other hand, higher interest rates will put pressure on future profits.” Both lead investors to want to see more favorable valuations than in the past.

Following the announced ECB meeting, investors are once again buying government bonds from southern European countries. By contrast, the yield on the 10-year Italian bond fell by more than 20 basis points to 3.99%. The interest rate on a 10-year Greek government bond was also 4.7 percent prior to the publication of the report; it is currently only 4.56 percent.

Look at the individual values

Drägerwerk: The shares are down 1.8 percent. Traders indicate negative figures from competitor Getinge. The Swedish group has scaled back its forecast for net sales for 2022.

Gerresheimer: Newspapers are up 11.9 percent. Traders are aiming to reignite takeover fantasies after Bloomberg reported that financial investor Bain had recently turned down an offer. The price offered was too low for the packaging manufacturer. “The price hasn’t been named, but the report carries lingering fantasies about stocks that have been a bit forgotten in recent times,” said one trader.

Here you can go to the page with the Dax course, here you can find the current highs and flops in the Dax.

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