The German leading index was characterized by caution at the start of the week in view of the lack of progress in the Middle East.
The DAX started the week with a small discount of 0.02 percent at 24,333.31 points. After that, it mostly trended around the zero line, albeit with a downward spiral. It ultimately closed 0.05 percent higher at 24,350.28 points.
Iran conflict continues without solution
The war concerns surrounding Iran continued to haunt investors on Monday, especially against the backdrop of rising oil prices.
The US and Iran are making no progress in their efforts to end the war. US President Donald Trump called Iran’s latest response to the US proposal for a diplomatic solution to the conflict “completely unacceptable” and made further threats against the Islamic Republic.
Investors continue to hope that the still shaky ceasefire in the Middle East war will hold and that the Strait of Hormuz, which is important for energy trade, will ultimately be reopened. However, the past shows that setbacks have to be taken into account in a possible rapprochement process, wrote analyst Christian Reicherter from DZ Bank. The prevailing confidence among market players seems to have recently gotten a little too far ahead.
Investors are concerned about inflation
The developments in the Middle East conflict are likely to continue to determine the direction of the stock market. Investors pay particular attention to the impact on the crude oil market. If the price for a barrel (159 liters) of the North Sea Brent variety is permanently above the much-noticed mark of 100 US dollars, there is a risk of a significant increase in inflation. This in turn could force central banks to raise key interest rates and put pressure on the stock markets.
Against this background, investors will probably also look at the US price data on Tuesday in the new week. President Donald Trump needs lower inflation rates as soon as possible in order to have a realistic chance of defending the Republican majority in the congressional chambers in the midterm elections in November and not become a “lame duck,” wrote Robert Greil, chief strategist at private bank Merck Finck. But the trend so far is completely different: “The US inflation figures for April are likely to approach the four percent mark rather than the three percent mark.”
Analysts with cautious confidence
Greil sees other reasons why Trump might be interested in an early end to the war. The pressure on the market to reach an agreement is generally increasing. There are also ammunition shortages and, because of the war, there is a lack of money for domestic tasks.
The stock market statistics experts at Index Radar are also not too pessimistic about the near future. High oil prices, geopolitical tensions, rising inflation expectations and a US Federal Reserve that allows maximum flexibility do not result in an environment that is normally known for record highs in stock indices such as the DAX. But liquidity, technological imagination and robust corporate profits continued to act as a resilient counterweight.
Analyst Claudia Windt from Landesbank Hessen-Thüringen was also quite confident: “So far, investors have only exercised restraint; a return to crisis mode has not yet been observed, especially since US President Trump confirmed that negotiations with Iran would continue.” As of today, the war-related fluctuations between risk-on and risk-off would continue until a peace agreement comes into force.
The end of the reporting season remains in focus
Otherwise, investors will also have to process a wealth of other company figures in the new week. There are numerous balance sheet templates on the agenda for this week in both the DAX and the small cap indices.
DAX record last in January
The gap to record levels remains on the German stock market. On January 13th, the DAX reached an all-time high of 25,507.79 points. Ultimately, it ended trading that day at 25,420.66 points, which also set a record based on the closing price.
Claudia Stephan, Alexandra Hesse, Evelyn Schmal, Benedict Kurschat, finanzen.net editorial team with material from dpa-AFX and Dow Jones Newswires
Image sources: Aleksandra Gigowska / Shutterstock.com, Julian Mezger for Finanz Verlag