The DAX started the trading day positively on Friday morning. At around 9:30 AM, the leading index was calculated at approximately 25,455 points, which represented a 0.4 percent increase from the previous day’s closing level.
Commentator Thomas Altmann of QC Partners noted that the yield on 10-year German government bonds reached its highest level since 2008. However, he pointed out that only parts of this upward trend can be attributed to the European Central Bank’s (ECB) recent interest rate hike and its outlook.
These bond dynamics are intertwined with global economic and geopolitical developments. Simultaneously, Saudi Arabia reported a further reduction in its oil production. Adding to the unrest, reports surfaced concerning the Houthi militia’s movements closer to the Bab el-Mandab strait. Both of these developments exerted further upward pressure on oil prices, activating the familiar cycle: rising oil prices lead to increased inflation expectations, which in turn drives up interest rates.
Currently, the sharpest rise in interest rates is visible in the shorter-term yield durations, as evidenced by the yields on 5- and 10-year Bunds. For the BOBL-Future, which tracks 5-year German bonds, the market witnessed only one day in the past year with a steeper decline in price. Furthermore, the two-year Treasury Future recorded its weakest day of the last twelve months yesterday.
The rising interest rates are also intensifying volatility in the stock market. Increased nervousness is apparent in the rise of volatility indices, and profit-taking is becoming more pronounced. Higher interest rates translate into more expensive financing costs, posing a threat to previously anticipated earnings. From an investor’s perspective, government bonds are increasingly becoming a competitive alternative to equities, signaling a current battle for capital and liquidity.
Today’s key economic indicator is the US inflation rate for August. Altmann states that analysts and investors anticipate the annual rate to stagnate at 3.4 percent. He views the inflation figure as the last crucial piece of data prior to the Fed’s interest rate decision next Wednesday.
In currency markets, the European common currency was somewhat weaker on Friday morning: one Euro was priced at $1.1609, meaning the Dollar traded at 0.8614 Euros.
Gold prices managed to benefit, trading at $4,350 per troy ounce in the morning, an increase of 0.8 percent, equivalent to €120.47 per gram.
Conversely, the price of oil saw a significant drop. Near 9 AM German time, a barrel of North Sea Brent crude was priced at $105.20, which was 2.2 percent less than the previous day’s closing price.
