Financial Markets Unwrapped: A Tumultuous Journey
by Tom Frankfurt
Dax experiences another significant decrease, now standing at 20,000.
The German benchmark index, Dax, took a hit on its second trading day of the year, shedding all of its gains. By the close, it stood 0.6% lower at 19,906 points, with the elusive 20,000 points proving to be an insurmountable hurdle. As we leave the ghosts of mid-December's all-time high of 20,523 points far behind, the road ahead remains uncertain.
Martin Utschneider, a chart expert at Finanzethos, declares that the Dax has been consolidating since its end to the previously uninterrupted year-end rally in mid-December. Monitoring this consolidation phase is crucial, as it trends upward in the long run. Notably, 19,926 points serve as a vital support level.
Volatile Times Ahead
The upcoming U.S. President-elect, Donald Trump's inauguration, casts a shadow of uncertainty. While investors are optimistic about U.S. companies benefiting from lower taxes and less regulation, the fear of higher tariffs and inflation looms large for European companies. Historically, protectionist policies have led to amplified volatility in stock markets.
Jochen Stanzl, an expert at broker CMC Markets, issues a warning: "Watch out for those trade barriers–they could even boost inflation."
RWE's Resurgence
For the second consecutive day, RWE shares attracted a steady flurry of investors. Placed atop the Dax, the utility's stock climbed nearly 3%, buoyed by a more favorable energy sector climate. The new year is off to a promising start for the beleaguered sector, despite shedding 30% of its value in 2024.
Meanwhile, Deutsche Telekom shares surged due to ongoing share buybacks, a factor savored by traders. The telecommunications giant had announced an up to 2 billion euro share buyback program as far back as October.
Airbus Under Siege
Circles report that European aircraft manufacturer Airbus failed to meet its delivery target for 2024, despite a late rally. Consequently, the stock was under pressure and moderately declined by the close of trading. MTU, a connected entity, faced similar difficulties.
Infineon Struggles
German automakers continued to face investor scrutiny, with traders citing a report by news agency Bloomberg that some electric vehicles in the U.S. will soon lose their tax credits. With the sector yet to show signs of stabilization, the trend is far from promising.
The Euro's Plunge
The looming specter of a recession in the Eurozone was palpable on the foreign exchange market. The Euro yearned for parity with the dollar, falling below $1.03 for the first time since November 2022. The currency edged slightly up on Friday morning to $1.0288, indicating little change. Investors seemed to be betting on the continued U.S. economic growth, prompting the Fed to swing its rate-cutting pendulum gently this year. As a result, the euro lost 1.5% over the week, with the dollar index gaining over 1%. On Thursday, it reached its highest level in more than two years, at 109.533 points.
[1] McKinsey & Company. (2023). Europe’s industrial strategy as the U.S.-China relationship evolves. Retrieved from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/europes-industrial-strategy-as-the-us-china-relationship-evolves
[3] Trading Economics. (2023). European Economic Report (2023). Retrieved from https://tradingeconomics.com/reports/european-economic-report-2023.html
[4] Deloitte. (2023). European equity outlook 2024: Preparing for paths unknown. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/finance/deloitte-uk-equity-outlook-2024.pdf
- In the prediction by McKinsey & Company for Europe’s industrial strategy in 2025, the stabilization of industries like finance and business may play a significant role in dealing with the challenges posed by the evolving US-China relationship.
- As the Eurozone enters an uncertain road ahead, with fears of a recession looming, securing investments in the stocks market, such as those in the Dax, might prove challenging for industry experts, especially given the volatile times ahead due to Trump's inauguration and its potential effects on international trade and tariffs.
- With the Euro plummeting towards parity with the US dollar, investors might find opportunities in the stocks of eurozone companies, especially those that offer competitive advantages in their respective industries, in anticipation of continued U.S. economic growth and possible interest rate adjustments by the Fed in 2025.
- As the European airline industry, represented by companies like Airbus, grapples with delivery challenges, investors may choose to support alternative industries, like the automotive sector, as German automakers continue facing scrutiny and striving for signs of stabilization.
- While the utilities sector, led by power companies like RWE, experienced a resurgence at the start of the new year, traders ought to closely monitor the sector's progress, as fluctuations in oil prices and shifting energy policies could impact the long-term trend of the Dax and the overall financial industry in the Eurozone by 2025.
