The German stock exchange experienced a downturn on Wednesday, with the benchmark DAX index closing at 25,286 points, representing a 0.5% decrease from the previous day’s close. Following an initial period mirroring the previous day’s performance, the index steadily declined throughout trading. This pullback, according to Christine Romar, Head of Europe at CMC Markets, was largely predictable after a four-week rally at the start of the year, which had propelled the DAX upwards by a significant 1,600 points.
Romar characterized the current market behavior as a “healthy correction” within a continuing upward trend, noting the lack of both positive catalysts that drove the prior gains and negative triggers prompting the current decline. The critical juncture, she emphasized, lies in the DAX’s ability to maintain support above the 25,000-point level. Failure to do so could generate a false signal, potentially triggering further selling pressure. A return to this support would also provide an opportunity for more cautious investors to re-enter the market at what they perceive to be a more attractive valuation.
Concerns are mounting across the Atlantic, with Romar observing signs of a more substantial correction on Wall Street. This is largely driven by a perceived slowdown in the momentum of technology stocks – previously the darlings of the bull market. “Nvidia, in particular, appears to be entering a period of consolidation that could persist for some time” she stated. This signals a wider trend of investors reassessing valuations of US Big Tech firms and diversifying their portfolios into other sectors. Despite the broader shift, the significant weighting of these tech giants continues to exert a net-negative influence on market indices.
Amidst the broader market retreat, Bayer provided a notable exception within the DAX, with its share price surpassing the 40-euro mark for the first time in over two years. This positive performance reflects not only potentially diminishing risks associated with the glyphosate litigation, with a US verdict anticipated this week, but also indications from Bayer’s management of renewed operational growth. The company projects a significantly improved operational margin, potentially reaching around 30% by 2030, spurred by promising pharmaceuticals.
Beyond equities, energy prices demonstrated upward pressure. Gas futures for delivery in February rose to €32 per megawatt-hour, a 2% increase compared to the previous day. This translates to a consumer price of at least 8 to 10 cents per kilowatt-hour (kWh), inclusive of taxes and charges, should prices remain at this level. Brent crude oil also recorded an increase, reaching $65.89 per barrel.
The euro strengthened slightly against the dollar, trading at $1.1656, indicating a dollar valuation of €0.8579. The combination of cooling equity markets and rising energy costs raises questions about the sustainability of the current economic environment, potentially forcing policymakers to navigate a delicate balance between inflation control and economic growth. The evolving dynamics of the US tech sector and the ongoing glyphosate litigation surrounding Bayer will also warrant close observation as indicators of broader market and industry trends.