FRANKFURT (dpa-AFX) - As the new week begins, investor focus remains firmly on the conflict in Iran. The Dax is expected to remain closely correlated with oil price developments. In this geopolitically tense environment, both the US Federal Reserve and the European Central Bank (ECB) are set to make decisions on key interest rates. In addition to crucial economic data such as the ZEW index, the earnings season continues, particularly among mid- and small-cap stocks.
Concerns over stagflation—stagnant or declining economic growth coupled with rising inflation—are mounting on the German stock market. "Further increases in energy prices will become a true litmus test for inflation and growth," summarized Andreas Lipkow, chief market analyst at broker CMC Markets. Hopes for a short-lived conflict in Iran are increasingly fraying. The Strait of Hormuz, vital for oil and gas trade, could remain significantly blocked for a longer period.
Around one-fifth of global oil consumption is typically transported through this strait south of Iran, calculated investment strategist Mark Dowding of RBC BlueBay Asset Management. However, 20 percent of global liquefied natural gas exports, 25 percent of fertilizer exports, and as much as 35 percent of urea exports are also affected. "Regarding inflation, the primary factor is how long trade will be impaired and to what extent it is possible to reroute goods via other transit points," Dowding wrote.
Recently, oil prices have hovered around the $100 mark. Sustained prices above this level would necessitate a downward revision of economic forecasts by approximately half a percentage point, wrote Dekabank Chief Economist Ulrich Kater. "This would not be an economic collapse, but it would represent a significant burden on growth and consumption."
In the event of an oil crisis with prices exceeding $150, Kater considers a recession likely. While this remains only a scenario for now, the news flow surrounding the issue is expected to cause ongoing volatility on the stock exchange.
A look at history offers little encouragement to equity strategist Uwe Streich of Landesbank Baden-Württemberg: "Previous oil price shocks were mostly followed by recessions." Furthermore: "With every week this situation persists, the economic costs are likely to rise exponentially, which is why investors should prepare for continued difficult days and presumably temporarily lower prices," Streich noted regarding the situation in the Strait of Hormuz.
Nevertheless, there were initial signs of a potential slight easing in the oil market before the weekend. Discussion was sparked by the US granting permission for countries to temporarily purchase Russian oil that is already on ships. Additionally, the "Financial Times" reported that France and Italy are seeking talks with Tehran to secure safe passage through the Strait of Hormuz. However, the Italian government has denied the report.
The Dax has declined by more than six percent since the outbreak of the Iran conflict about two weeks ago, briefly slipping below the psychological 23,000-point mark. Recently, however, the German benchmark index has managed to stabilize somewhat. "It is currently refusing to let its position be further eroded," observed analyst Frank Sohlleder of broker Activtrades. However, how long the technical support at 23,300 points holds is currently determined solely by global politics.
The upcoming interest rate decisions are also expected to be overshadowed by the conflict in Iran. Eckhard Schulte of MainSky Asset Management does not expect a rate move from either the US Federal Reserve on Wednesday or the European Central Bank on Thursday. However, the market wants to know how the two central banks intend to handle the expected "inflation hump" this spring. Should the Iran conflict not last too long, further key interest rate cuts later in the year remain the base case for Robert Greil, chief strategist at private bank Merck Finck.
From the perspective of experts at Index Radar, the probability of further rate hikes by the ECB has increased, while expectations for Fed rate cuts have continued to diminish. This shift is also reflected in the bond market, where yields are rising. Thus, in addition to skyrocketing energy costs, higher financing costs are becoming a major burden for companies—"and thus the second major risk for stock prices," commented portfolio manager Thomas Altmann of QC Partners.
On the corporate side, the reporting season enters its next round. Alongside numerous annual results from mid- and small-cap companies in the MDax and SDax, Dax-listed Vonovia will also open its books on Thursday. On Friday, defense supplier Vincorion plans its stock market debut. By the end of the week, the major expiration date on the derivatives exchanges could also trigger noticeable price movements.
Current economic data is likely to take a backseat given the conflict in Iran. The sentiment barometer from the ZEW research institute could provide an indication of future growth prospects on Tuesday. Metzler Chief Economist Edgar Walk expects a noticeable setback for the index, which had already unexpectedly clouded over in February./niw/bek/ms/he
--- By Nicklas Wolf, dpa-AFX ---
