The RoboMarkets Weekly Review and Outlook – DAX Bumps Along the top

Jürgen Molnar, Capital Market Strategist RoboMarkets

19 February 2023

First it was consumer prices, which continued to fall but at a much slower pace, then continued robust consumption, confirmed by strong retail data, and last but not least, producer prices in the US, which rose twice as much as expected. They were then the famous straw that broke the camel’s back. The fear of a restrictive US Federal Reserve, which is still far from the end of its cycle of interest rate hikes, returned to the stock market with full force.

This should also mean that the quiet times for the DAX are over for the time being. Having climbed above the 15,500 mark a couple of times during the week, the index is unlikely to take it with it into the weekend. It has been shown once again that when greed takes on extreme traits – as can be seen from the Fear & Greed Index of the CNN news channel – a correction is not far away. In the previous week, this index had risen to its highest level of the year with 77 out of a maximum possible 100 points, as I mentioned in my weekly review.

Commerzbank Is Back in the Game

Greed may have crept up on many a bank shareholder this week. With the return of interest rates, the profits of financial institutions are also bubbling up again. Commerzbank earned 1.4 billion euros last year, more than three times as much as the year before. Dividends, share buybacks – everything seems possible again. However, with a recent double-digit weekly increase, much of this should already be included in the share price.

The extra bonus that the yellow bank is likely to be promoted to the top German stock market league on Friday evening should also have been processed. On the other hand, with ever higher interest rates in the short term, Commerzbank’s earnings potential is also rising. This combination with the possibility of future dividend payments is in any case music to the ears of investors who have not been able to win a pot of gold with bank shares in recent years. However, how long the music will continue to play in the hotly traded share could be decided as early as next week.

Wage-price Spiral Continues

After the postal workers’ strike, it was the turn of the airport staff on Friday. Not much was going on at seven German airports. The unions are demanding 10.5 per cent more pay to compensate for inflation. What would have been considered an exorbitant demand in previous years is actually appropriate in view of the current inflation. With 2.5 million employees, another occupational group is thus clearly turning on the wage-price spiral.

With every wage increase even in this direction, the goal of price stability in Germany and the Eurozone is likely to move further and further away. The pressure to finance staff salaries through further price increases remains high. And the pressure on the European Central Bank to counteract with further interest rate hikes will also remain high.

The Air in the DAX and on Wall Street Seems to Be Out for Now

At least on the data front, the coming trading week will start quietly. In addition to the Ifo business climate index from Germany in the middle of the week, things could get exciting towards the weekend when, among other things, the price components of US GDP and consumer spending in the USA are published.

However, it is doubtful whether these will have the potential to banish the spectre of interest rates from the trading floor before the next Federal Reserve meetings in March. For the time being, the DAX seems to have hit the top and it would take a small miracle for it to break out towards an all-time high. For the time being, therefore, the resistance of the past few days could be over and the market could start to retreat.

DAX – Current Supports and Resistances

Supports: 15,300/15,250 + 15,150/15,100 + 15,500/15,000

Resistances: 15,450/15,500 + 15,650/15,700 + 15,800/15,850

This article is from RoboMarkets.