FRANKFURT (dpa-AFX) - In a jittery trading environment, defense stocks extended their recent losses on Monday as the sector continued to suffer from ongoing profit-taking. Rheinmetall was among the biggest losers in the DAX, dropping 1.6 percent to €1,753 after temporarily falling to its lowest level since early January. Meanwhile, the German benchmark index posted moderate gains by late morning.
The trigger for the uncertain market conditions, which coincided with profit-taking in defense stocks, was the recent slump in gold and silver prices. This, in turn, was caused at the end of last week when former Fed Governor Kevin Warsh was nominated by U.S. President Donald Trump as successor to Federal Reserve Chairman Jerome Powell. This move fueled doubts in the markets about whether there will actually be a significant loosening of monetary policy.
Quite a few speculators who had bet on further rising precious metals prices using credit were likely caught off guard. They then have to unwind their positions, which puts additional pressure on prices—creating a downward spiral until the situation stabilizes. Such developments can temporarily spill over into other markets, such as equities.
Jochen Stanzl, chief market analyst at Consorsbank, commented: "The losses in precious metals prices—triggered partly by increased margin requirements at futures exchanges, with silver seeing its largest single-day drop ever recorded—are prompting automatic technical sales in other asset classes, even though these are unrelated to the sharp correction in precious metals." He added that too many investors had recently been invested in precious metals and were caught off guard by Friday's sharp correction. Now, they must sell other positions to cover their losses.
It comes as no surprise that investors are now continuing to cash out of defense stocks, as these have also risen exceptionally strongly in the new year. The sector remains supported by NATO requirements in light of Russia's war of aggression against Ukraine, as well as ongoing geopolitical flashpoints, especially after Iran's Supreme Leader warned of regional escalation in the event of a U.S. attack.
Among other defense stocks, TKMS fell 2.6 percent and Hensoldt lost 2.8 percent.
Renk, on the other hand, saw only slight losses. The analysis firm Jefferies had rated the tank transmission manufacturer as its top defense pick. Analyst Chloe Lemarie pointed to the expectation that the company will particularly benefit this year from German and European investments in defense./la/tih/jha/
