The DAX was negative during Thursday’s trading session as selling pressure continued to weigh on the market.
German yields remain a major headwind, with Germany’s 10-year yield at 3.48% and seemingly ready to rise even further.
The ECB also tightened monetary policy by 25 basis points, its second rate hike this year. The decision itself was anticipated, but the bigger question is whether rates continue to be hiked as energy-driven inflation persists. After all, crude oil is above the $100 level, creating a potential stagflation problem. Brent surged above $100 as Middle East tensions escalated and tanker attacks around the Strait of Hormuz continued.
At this point, the market has been rather negative, but there has been mixed underlying performance from various companies. For example, the biggest drag today is SAP, reportedly down just over 3%, and given its very large weighting on the DAX, that alone is going to suppress the index. On the other side of the coin, Deutsche Bank was up about 1.4%, benefiting from the higher-rate backdrop. Airbus was up 0.5% as well, so not all is going wrong in Germany.
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Short term, this is a somewhat bearish looking market
It is basically a situation where the DAX Index is caught between two negative forces: ECB rates and yields, and, of course, higher energy costs. Short term, this is a somewhat bearish-looking market, but longer term, it is still very bullish.
We are still in a channel that goes back to April, and the 200-day EMA sitting at the 25,000 level should, at least in theory, end up being a potential floor in the market. The market turning around and breaking above the 50-day EMA could bring in fresh FOMO trading for the bulls.
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