FRANKFURT (dpa-AFX) - Following the Dax's recovery over recent days, investors can look forward to potential further gains in the coming week. Sentiment was recently bolstered by statements from the Iranian Foreign Minister indicating that the Strait of Hormuz is now open to all commercial shipping. This strait serves as a vital trade artery for the global economy and had been largely blocked due to the conflict with Iran.
"The lights have turned green again across other trading floors as well, after Donald Trump fueled hopes for an agreement with Iran," noted Frank Klumpp, equity strategist at Landesbank Baden-Wuerttemberg (LBBW). The rally in the U.S. has been particularly striking, with record highs for the broad-market S&P 500 and the tech-heavy Nasdaq 100. Both indices have now more than recouped their losses since the outbreak of hostilities in late February.
Japan's Nikkei 225 also recently hit a new milestone. In contrast, the German benchmark index still has some ground to cover. However, the technical picture has brightened significantly since the index climbed back above its 100- and 200-day moving averages, which are key indicators for medium- to long-term trends.
Meanwhile, Klumpp warned against excessive expectations, noting that "current prices already reflect a great deal of optimism." He cautioned that the economic fallout from the Iran conflict remains difficult to quantify and that conditions in the oil markets remain tense.
Experts at Landesbank Helaba pointed out that while equity prices retreated visibly at the start of the conflict in late February, the decline was less severe than in previous crises. "Panic was never evident in classic fear indicators such as implied equity volatility," they emphasized. It appears that recent signals of de-escalation were sufficient for many investors to re-enter the market at slightly lower valuation levels.
As an optimistic Middle East scenario seems largely priced in, "a certain potential for disappointment is building for the coming weeks," Helaba added in its weekly outlook. Since the start of the war, glimmers of hope have repeatedly been followed by setbacks, suggesting that "the path to a lasting peace settlement is likely to be rocky."
Ulrich Kater, Chief Economist at Dekabank, struck a similar chord. While he noted progress in talks, particularly between U.S. ally Israel and Lebanon - where the Iran-aligned Hezbollah militia operates - he cautioned that "beyond the U.S. President's announcements and commentary, concrete results have yet to materialize."
According to market analyst Timo Emden, the German stock market remains "remarkably resilient" in the face of the ongoing Middle East conflict. Investors are betting that the ceasefire between the U.S. and Iran will hold for now and "could lead to a sustainable peace agreement in the medium term." This is supporting "the risk appetite of many investors, who are currently choosing to look past geopolitical risks rather than pricing them in anew."
In addition to these uncertainties, Helaba suggests that high valuations across many equity indices are also capping further upside. Against this backdrop, the upcoming quarterly earnings season is expected to return to the forefront of investor focus.
The German corporate calendar remains relatively light at the start of the week. On Tuesday, consumer goods group Beiersdorf will provide an update on sales performance, followed on Wednesday by an interim report from online broker Flatexdegiro. From the U.S., Airbus rival Boeing and electric vehicle manufacturer Tesla are among those scheduled to release financial results, with the latter reporting after the New York close.
Thursday will see updates from laboratory and pharma supplier Sartorius, lighting manufacturer Hella, rail technology group Vossloh, and software giant SAP late in the evening. The reporting round concludes on Friday with Atoss Software.
According to Dekabank economist Kater, potentially market-moving economic data is likely to remain overshadowed by developments in the Middle East. Sentiment indicators from Germany should "provide insight into whether companies view the situation as optimistically as financial market participants." The ZEW economic sentiment index is due on Tuesday, followed by S&P Global PMI data on Thursday and the Ifo Business Climate Index on Friday./gl/ajx/he
--- By Gerold Loehle, dpa-AFX ---
