FRANKFURT (dpa-AFX) - The bumpy recovery of the German stock market could continue in the coming week. Investors remain hopeful that the still-shaky ceasefire in the Middle East conflict will hold and that the Strait of Hormuz, a critical artery for energy trade, will ultimately be reopened.
However, past experience suggests that setbacks in any potential rapprochement process must be factored in, wrote analyst Christian Reicherter of DZ Bank. Consequently, the prevailing optimism among market participants appears to have overshot recently.
In this respect, news regarding the military confrontation between the US and Israel on one side and Iran on the other is likely to continue dictating the direction of the equity market. Investors are paying particularly close attention to the impact of these developments on the crude oil market. Should the price of a barrel of Brent North Sea crude remain sustainably above the closely watched 100-dollar mark, there is a risk of a significant spike in inflation. This, in turn, could force central banks to potentially raise key interest rates, which would subsequently weigh on equity markets.
Against this backdrop, investors will also be looking toward US inflation data on Tuesday. President Donald Trump needs lower inflation rates as soon as possible to have a realistic chance of defending the Republican majority in the chambers of Congress in the November midterms and to avoid becoming a 'lame duck', wrote Robert Greil, Chief Strategist at private bank Merck Finck. However, the trend so far has been quite different: 'US inflation figures for April are likely to approach the four percent mark rather than the three percent mark.'
Greil sees further reasons why Trump should be interested in a swift end to the conflict. Market pressure to reach an agreement is generally increasing. Furthermore, there are ammunition shortages, and the war is draining funds needed for domestic priorities.
The market statistics experts at Index Radar are also not overly pessimistic about the near future. While high oil prices, geopolitical tensions, rising inflation expectations, and a US Federal Reserve maintaining maximum flexibility do not typically create an environment known for record highs in equity indices like the Dax, liquidity, technology-driven momentum, and robust corporate earnings continue to act as a remarkably resilient counterweight.
Analyst Claudia Windt of Landesbank Hessen-Thüringen also expressed a degree of confidence: 'So far, investors are merely exercising restraint; a return to crisis mode has not yet been observed, especially as US President Trump reaffirmed the continuation of negotiations with Iran.' As it stands today, war-related fluctuations between risk-on and risk-off will persist until a peace agreement comes into force.
Otherwise, investors will have to digest a wealth of further corporate earnings in the coming week. On Monday, engineering group Gea Group, reinsurer Hannover Re, and construction group Hochtief, among others, will report on their first-quarter business. Tuesday will follow with Dax heavyweights Bayer, Munich Re, and Siemens Energy, alongside numerous mid- and small-cap stocks.
The agenda is even more crowded on Wednesday. From the domestic benchmark index alone, the focus will be on Allianz, Brenntag, Deutsche Telekom, Eon, Merck KGaA, Porsche Automobil Holding, RWE, and Siemens./la/ajx/he/men
--- By Lutz Alexander, dpa-AFX ---
