The German index fell on Tuesday, as the ten-year Bund yields remain above the crucial 3%.
The German index found itself on the back foot as we continue to see a lot of issues when it comes to market participants and the overall concerns about energy coming to the European Union.
If we continue to see a significant problem when it comes to the Middle East and the conflict, that becomes your default.
You have to start looking at this as a market that is worried about the general future of the German economy.
The German economy will continue to see energy be a major factor and if energy continues to be a major factor, that will be an issue that traders will have to price into earnings and economic growth in general. I do believe this is a market that will eventually have to come to some type of longer-term conclusion but as things stand right now, it is swinging on the latest rumor or tweet coming out of either the United States or Iran.
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Geopolitical Tensions and Energy Risks
Traders will be at the whim of the latest decision to either sound like we are trying to find peace or that we are trying to antagonize the other person. This has been a game of brinksmanship that has really put traders on the back foot. I just don't see a situation where trading becomes any easier and I would suspect that traders will continue to sell first and ask questions later.
Market participants have had to deal with the random threat coming out of the United States or Iran and now during the session the Iranians have concluded that the Strait of Hormuz is actually bigger than once thought and now are threatening to shut down the whole region. Germany is right in the crosshairs of that as this is a market and economy that is wholly dependent on energy being imported.
If that is going to continue to be a problem for the Germans, nothing good comes of this and we could break down. However, if we get interest rates dropping mainly because of peaceful overtures, then the DAX could bounce towards the 24,400 euros level, although I am not really holding my breath for that. I think we are going to bounce around this 24,000 level over the next couple of days while we try to figure out what exactly will happen next.
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