The German stock market index, the Dax, remained in negative territory on Thursday, continuing a poor performance that began at the open. Around 12:30 PM, the leading index was calculated at approximately 25,070 points, representing a 0.5 percent drop from yesterday’s closing level.
Andreas Lipkow, Chief Market Analyst at CMC Markets, commented that the Dax was currently struggling to hold the 25,000-point mark. He attributed the pressure on the market to rising energy prices combined with continually increasing bond yields, which are increasingly pushing investors out of the equities market.
According to Lipkow, high oil prices are fueling anxieties about further price spikes, leading to the potential for a prolonged period of restrictive monetary policy. Simultaneously, the prices of many government bonds are falling, driving up their yields. This situation highlights the issue of high sovereign debt across many nations. Higher yields make refinancing more costly and progressively narrow the financial maneuvering room for these governments. Lipkow stressed that the current yields might not be historically exceptional, but rather that governments, companies, and investors have grown accustomed to persistently low interest rates over many years. He argues that the new interest rate reality is not unusual; the previous low rates were.
This habituation effect is now being priced into the market. Consequently, increasing yields are no longer simply capping stock market growth; they are actively exerting downward pressure on prices. He concluded, “The more attractive bonds become, the more arguments stocks need to justify their higher risks and often ambitious valuations.”
The British FTSE 100 also saw a decline on Thursday, settling at 10,460 points. Lipkow noted that the normally positive effects of rising energy costs on heavy oil companies are no longer sufficient to offset the headwind from the British bond market. Specifically, the combination of high energy and financing costs could increasingly become a burden on the real estate sector and private consumption.
This challenging environment also threatens recent government initiatives aimed at boosting British housing construction. While state subsidies can create purchasing incentives, they cannot fully compensate for the persistent high mortgage rates.
Lipkow suggests that the global interest rate increase is fundamentally changing the balance of power in the capital markets. What was previously merely a headwind for stocks could evolve into a genuine shift towards fixed income. If this trend gains momentum, it would not just be a temporary concern for individual trading days but could influence stock markets over the coming quarters.
Meanwhile, the European common currency weakened on Thursday afternoon. One euro fetched 1.1287 US dollars, while the dollar was priced at 0.8860 euros. The price of gold experienced a slight rise, hitting $4,165 per fine ounce in the afternoon (+0.2 percent), equating to 118.64 euros per gram. In contrast, the price of oil surged; a barrel of Brent crude from the North Sea was trading at $100.40 around noon German time on Thursday, which was 2.4 percent higher than the previous day’s close.
