The Dax index started the trading day on Tuesday with gains, with the benchmark index calculated at around 20,262 points, a 0.7 percent increase from the previous day’s close. Merck’s shares led the market, while Beiersdorf’s shares lagged behind.
“A small reversal in yesterday’s trading day does not bode well for a continuation of the rally, as long as the market fails to break through the resistance at 20,600 points” commented Jochen Stanzl, chief market analyst at CMC Markets. “However, a weak euro could help the Dax decouple from the US market in a positive sense. The upcoming earnings season in Germany is likely to be strong for many export-oriented companies, as the euro has lost significant value against the dollar in the fourth quarter.”
Stanzl described the recent trend in US 10-year bond yields as a “good news” as they have not surged to five percent. “This leaves the hope that the corresponding inflation data from the US, to be released today and tomorrow, will slow down the rise in yields. However, it is unlikely that the data will prompt investors to speculate on a rate cut at the end of the month” the analyst said. “Data that are in line with or weaker than expected could at least dampen the negative sentiment at the beginning of the earnings season.”
The first rate step by the Fed this year is currently expected for September. “There is still a lot of time for a lot to happen until then” Stanzl said, recalling that the market had previously expected four rate cuts by the end of the year. “If the inflation data now suggest a renewed price pressure, the expected timing of the next rate cut could be pushed back to December. Rate expectations remain highly volatile.”
The euro was little changed on Tuesday morning, with one euro equivalent to 1.0263 US dollars, and one dollar to 0.9744 euros.
Meanwhile, the oil price fell, with a barrel of Brent crude trading at 80.52 US dollars at around 9 am CET, a 0.6 percent decline from the previous day’s close.