The German stock index, the Dax, gained ground on Tuesday, closing at 26,347 points, marking a 0.3 percent increase compared to the previous day’s close. Market analyst Andreas Lipkow of CMC Markets noted that the Dax had already recovered to previous record levels mid-day. However, new profit-taking began during the trading hours in the US and the Dax.
Lipkow attributed this caution to US consumer prices, which rose faster than anticipated, putting inflation risks back into the spotlight. He explained that the effects of the previous period of high energy prices are now increasingly evident in general price development. The latest published import prices indicated persistent cost pressures, casting a shadow on the hope that falling crude oil prices would quickly bring inflation back under control.
This situation makes the outlook more complicated for the US central bank. Lipkow stated that the surprisingly high consumer prices could intensify expectations for further interest rate hikes. Furthermore, he pointed out that financial markets are currently highly sensitive to shifts in inflation expectations, with investor attention focused on government bond yields. Rising yields increase financing costs for both companies and consumers, consequently making fixed-income investments more attractive relative to equities. This dynamic, he warned, could rapidly create new selling pressure, particularly on highly valued growth companies.
Two opposing economic trends are thus battling in the markets: on one side are hopes for geopolitical relief, falling energy costs, and economic recovery, while on the other, tenacious inflation threatens to further restrict the monetary policy maneuverability of central banks. Investors are, therefore, forced to adapt their expectations almost daily to new parameters. What yesterday was seen as an argument for rising share prices can today be overshadowed by new concerns over interest rates.
Despite this fresh uncertainty, the underlying prospects for the Dax remain constructive. The hope for peace and declining energy costs continue to support the outlook for the European economy. Yet, Lipkow stressed that sustained breakout toward new records requires more than just geopolitical optimism. As long as inflation in the US continues to cause surprises, bond yields remain the decisive factor of uncertainty.
Before the close, shares of Henkel, Zalando, and Daimler Truck topped the performance charts, while the Siemens-Energy stock ended the day at the bottom.
In commodity markets, the price for gas increased, with one megawatt-hour (MWh) of gas for December deliveries costing 85 Euros-a three percent increase from the previous day. This suggests a consumer price of at least 13 to 16 cents per kilowatt-hour (kWh), including taxes and ancillary costs, if this price level persists. Conversely, the price of oil fell; a North Sea Brent barrel was trading at $91.74 on Friday afternoon, representing a 0.9 percent decrease from the previous trading day.
Finally, the European community currency weakened by Tuesday afternoon. One Euro bought $1.1148, while the US Dollar fetched 0.8970 Euros.
