The German market dipped sharply to close out the week, with the DAX settling at 25,820 points, representing a loss of 1.9 percent compared to the previous day’s close. After a weak start, the index expanded its losses during the morning session before remaining at this level.
Andreas Lipkow, Chief Market Analyst at CMC Markets, noted that the DAX had fallen significantly below the 26,000 points mark, having previously seen a new record high followed by sharp pullbacks in the semiconductor sector. Virtually a thousand points now separate the leading German index from its new best high.
While technology stocks showed signs of initial recovery, Lipkow pointed out that the broader stock market remains under pressure. Today, investors focused primarily on companies that directly or indirectly benefit from the expanding AI infrastructure. Among the stocks in the DAX, Siemens Energy, RWE, Hochtief, and Infineon were relatively stable, although the recovery of individual technology stocks was not enough to offset the overall market weakness.
In the afternoon, political uncertainties stemming from the US mid-term elections added another layer of pressure. Lipkow detailed that the released US labor market data was significantly stronger than anticipated. The creation of 165,000 new jobs far surpassed the projection of merely 65,000, while the unemployment rate stood at 4.1 percent, lower than expected.
However, he cautioned that central bankers are paying close attention to wage growth, as the average hourly wage also grew by a stronger-than-expected 0.4 percent. This robust US labor market strength could become a new challenge for the stock market. While strong employment signals a consistently robust US economy, it simultaneously increases the risk that rising wages will keep inflationary pressures high for the long term. Lipkow warned that this could amplify the ‘second-round effects’ already discussed by the Bank of England in the US. If companies pass higher labor costs onto consumers, inflation could become entrenched even if energy prices soften.
Consequently, the monetary policy room for the US central bank is tightening, the analyst warned. Investors had recently been betting on inflation easing and the Federal Reserve adopting a more cautious stance. The surprisingly strong labor data, however, might reinforce expectations of further interest rate hikes. According to Lipkow, although this serves as fundamentally good news for the US economy, it is far from being positive for stock markets. A strong labor market supports growth and consumption, but it could simultaneously push interest rates to remain high or even continue to rise.
The situation for the DAX also remains tense. While the hope for a year-end rally is not entirely gone, the hurdles are rising. Lipkow concluded that investors must accept that a robust US economy does not automatically equate to rising share prices. As positive economic data triggers renewed interest rate concerns, nervousness across international stock markets is likely to persist.
Prior to the close of trading, shares of Siemens Energy, RWE, and Fresenius led the list. The weakest performers were BMW, DHL, and the reinsurers Munich Re and Hannover Re.
Meanwhile, commodity prices saw adjustments. The price of gas dropped, with a Megawatt-hour (MWh) for December delivery costing 86 Euros, a five percent decrease from the previous day. If this price level holds, it implies a consumer price of at least around 13 to 16 cents per kilowatt-hour (kWh), including taxes and ancillary costs.
The oil price also fell; a barrel of North Sea Brent crude clocked in at $97.26 on Friday afternoon, representing a 1.1 percent decrease from the close of the preceding trading day.
In currency markets, the European common currency weakened on Friday afternoon. The Euro traded at $1.1149, while the dollar fetched 0.8969 Euros.
