The Dax started weakly into the trading day on Friday morning. By 9:30 am, the leading index was calculated at around 19,770 points, a 1.0% drop from the previous day’s closing level. Consequently, all 40 Dax stocks initially traded in the red.
“Investors are hoping that the spell of the past 36 hours will soon be over, but today is a witch’s Sabbath” said Jochen Stanzl, chief market analyst at CMC Markets. “Volatility is high, a second wave of sales can set in at any moment. Where the Dax will close today is not predictable from the positioning in options. Even the largest individual investors cannot move entire indices, let alone individual stocks, on their own. At the end of the day, the largest positions are just one aspect.”
“With a more cautious US Federal Reserve and rising yields, investors currently have quite different problems. The Fed’s surprise strong sell-off in stocks has been triggered. The strength of the price drop was facilitated by the fact that the euphoria had no limits beforehand. Additionally, the market breadth has been problematic since the start of the month, and investors have been focusing on the speculation of particularly speculative stocks and cryptocurrencies. Value stocks have been shunned since the start of the month.”
There aren’t many bargain hunters in the Dax just after the surprise from Washington. The confusion about the future of monetary policy is too great. “The Fed’s monetary policy outlook predicts a 50-basis-point higher base rate for 2025, 37 basis points more for 2026, and 25 basis points for 2027. The prospect of interest rate cuts is so low that not much can go wrong, or there will be a complete abandonment of further easing. These are bad news for the US economy, as higher interest rates over a longer period mean an enormous burden on growth. The stock markets have begun to price in a lower growth for 2025, in which the Fed will continue to try to achieve its inflation target of two percent” Stanzl said.
“Today, the PCE deflator will be published, the preferred inflation indicator of the Fed, as it is broader and also measures the reaction of consumers to higher prices. Inflation has calmed down, but it is still not out of the danger zone. This is a reason for concern and leads the market to assume that high interest rates may be necessary for a longer period to also cool down stubborn metrics like rents and services” Stanzl added.
The European common currency was stronger on Friday morning: one euro cost 1.0388 US dollars, and one dollar was 0.9626 euros.