The Dax started the trading week on Monday with a weaker tone. By 9:30 am, the leading index was calculated at around 20,100 points, 0.6% below the closing level of Friday.
“The mood among investors is dampened at the beginning of the year” said Jochen Stanzl, chief market analyst at CMC Markets. “Several factors are causing caution. In addition to rising oil prices, the still very strong labor market in the US has further reduced the already low expectations of interest rate cuts on Friday. This combination is causing only little risk appetite among investors. In the end, it’s a cautious start to the new stock year. It’s to be hoped that the increasingly weaker euro at least can shield the Dax from the now impending correction at Wall Street.”
“The recent sanctions against Russian oil exports have far-reaching effects on the global oil market.” Especially in China and India, the largest consumers of Russian oil, the new situation is causing uncertainty. “After hastily convened crisis meetings, the legal departments there are intensively examining how they can continue to import cheap oil from Russia without violating the sanctions. It could take months for alternative solutions to be found.”
This development raises doubts as to whether there will indeed be an oversupply of oil in 2025. A drastic price fall is likely to be absent for the time being. “Oil prices could stabilize at a level five to eight dollars higher than before, until it’s clear whether Russian oil will permanently be missing from the global market. A phase of strongly rising prices is, however, also unlikely, as the global oil production is likely to be able to meet the demand.”
“The signals from the bond market have been ignored by investors on Wall Street for too long. Now it might be the end of that. The yields of 20- and 30-year government bonds are already at five percent and have risen by 100 basis points since September, when the Fed began the interest rate cuts. This is very unusual, as in the past, they have either remained the same or only slightly risen at the beginning of a rate-cut cycle.”
With a yield of 4.7%, even ten-year maturities are not far from the five-percent hurdle. “The yield increase could become a wake-up call for all those investors who still believed in an unstoppable bull market on Wall Street just a short time ago. A correction of the S&P 500 of five or even ten percent will be more likely. The trigger could be a rise in the 10-year yields to five percent” said Stanzl.
The European common currency was slightly weaker on Monday morning: one euro was worth 1.0227 US dollars, and one dollar was worth 0.9778 euros.
Meanwhile, the oil price rose significantly: a barrel of the North Sea Brent type cost around 80.98 US dollars at 9 am German time, which was 1.5% more than at the close of the previous trading day.