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Dax at a low for the year - these factors are a burden

2022-03-04T16:08:20.403Z


The war in Ukraine pushed the Dax down to its lowest level in a year. But even if the guns should rest soon: many burdens for the stock market remain. The financial market is also experiencing a turning point.


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Price slide: The Dax has lost almost 20 percent of its value since the beginning of the year

Photo: Arne Dedert / picture alliance / dpa

The Dax lost around 9 percent in value this week.

Since the beginning of the year – the Dax was still trading at 16,150 points on January 4 – the leading German index has lost almost 20 percent.

These calculations are secondary in the face of the suffering that Vladimir Putin brought to the people there with his attack on Ukraine.

Everyone longs for a ceasefire - the sooner the better.

Every hour counts for the people affected in the war zone.

The stock exchanges are also likely to react in the short term with a jump in prices if the negotiations are successful in the coming days and the guns are silent.

Nevertheless, it is very unlikely that the financial markets will quickly return to old record highs.

The burdens that are now permanently weighing on the markets are too great.

These include skyrocketing commodity prices, rising inflation, uncertainty about interest rate policy and the sanctions against Russia, which will remain in place even after a ceasefire.

High raw material prices in the long run

Prices on the commodity markets are taking off.

Energy sources such as oil and gas, but also important industrial metals such as nickel or aluminum are becoming more and more expensive.

Around 10 percent of the daily oil and gas requirements come from Russian sources, Germany covers more than half of its gas requirements through imports from Russia.

These quantities cannot be replaced in the short term.

The fact that liquid gas from the USA and Qatar could serve as a replacement in the short term is a self-deception, says Christoph Bruns from the investment company Lloys.

The price of natural gas in Germany has risen by 70 percent since the beginning of the year.

Should Russia fail completely as an energy supplier, the Economist estimates that the price of oil could rise above the $150 per barrel mark.

Rising inflation – and risk of stagflation

Rising commodity prices are fueling already high inflation in Europe and the US.

In the EU, the price increase is over the 5 percent mark, in the USA it is around 8 percent.

At the same time, the war shock and the massive disruption to global supply chains threaten to stall the economic recovery that is just beginning.

This threatens the scenario of stagflation, i.e. economic weakness coupled with high inflation.

This scenario would be poison for the financial markets.

Uncertainty about interest rate policy

Fed Chair Jerome Powell is expected to hike rates by 25 basis points in March.

It is uncertain whether this small interest rate hike will be enough in view of inflation of almost 8 percent in the USA, says Neil Wilson, analyst at Markets.com. Powell is unlikely to risk a large interest rate hike in view of the war.

This will ensure that the Fed will then be under even more pressure to act in the second half of the year.

The situation in Europe is different.

Irrespective of the runaway inflation, the war increases the financing needs of the states quite significantly, argues Loys fund manager Bruns.

Germany alone has announced that it will invest an additional 100 billion euros in national defence.

In addition, Europe is facing a new wave of refugees.

If in doubt, the ECB will print additional money instead of initiating a turnaround in interest rates.

Sanctions against Russia will remain

Western countries have decided on a large number of sanctions against Russia - and accept that their own economy will also suffer as a result.

The exclusion of Russia from the Swift financial system also affects countless small and medium-sized companies that have exposure to Russia.

Car companies such as VW, Mercedes and BMW are temporarily shutting down their business in Russia.

At the same time, however, many assembly lines are standing still in Germany because there are no supplier parts that are produced in Russia or the Ukraine.

For the German economy and the Dax, which are heavily influenced by the auto industry and export companies, the interrupted supply chains are likely to cause problems in the long term.

According to fund manager Markus Schön, the production restrictions in the automotive sector due to the lack of cable harnesses from Ukraine, the consequences of sanctions for exports and rising energy and food prices are likely to push German economic growth by at least 1.5 percent below expectations.

If the German economy were to grow by more than 1 percent in 2022, that would already be a success.

la/mmo

Source: spiegel

All news articles on 2022-03-04

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