DAX Ticks Off Banking Crisis for Now – Real Estate Sector Remains Achilles’ Heel

Jürgen Molnar, Capital Market Strategist RoboMarkets

31 March 2023

Whether confidence in Deutsche Bank was actually lost last Friday or whether it was just individual speculators who, with little effort, drove up the cost of credit default swaps and thus sent the share price plummeting, is still being investigated by the financial supervisory authority. But the development shows how the market and its players can themselves cause a whole structure to totter, although fundamentally perhaps not much has changed. For there were and are so far no indications whatsoever that Deutsche Bank could face the same fate as Credit Suisse.

This realisation has at least ensured that investors have regained confidence in the stability of the banking sector over the course of the week and have bought the corresponding shares. If the customers of the financial institutions keep their confidence in the future, the banking crisis may indeed be a thing of the past. The DAX at least has shaken off the fear of a Lehman effect 2.0 and switched back into rally mode. With the jump above the resistance zone at 15,250 points, it has initially cleared the way to the high for the year just above 15,700 points.

Some All-clear on the Inflation Front

In addition, inflation continues to fall and this plays into the hands of the central banks, whose hands are somewhat tied in terms of interest rate hikes after the turbulence in the banking sector. At least after the figures from Germany and the Eurozone for March, the all-clear can be given from this perspective for the moment. The words of the chief economist of the European Central Bank, Philip Lane, also fit into this picture.

The monetary policy expert expects inflation to fall significantly in the second half of the year at the latest and sees no signs of a wage-price spiral, which is, however, difficult to imagine due to the currently hard-fought wage negotiations across all sectors. But it is doubtful whether all this is enough to justify the interest rate cut fantasy that investors are currently pricing into the stock market.

Trouble Looms on the Real Estate Market

The real estate market remains the Achilles’ heel of the financial sector. A major crisis could brew here in the coming months. In the US real estate sector, or more precisely in commercial real estate, demand is clearly declining. In New York, the financial capital, more commercial properties are empty than ever before. This could significantly increase the pressure on banks again in the medium term if loan defaults occur here.

As the financial crisis of 2008 showed, no other market is as geared to growth as the US real estate market. If the situation continues to worsen, the consequences are likely to be felt in Europe as well. This is a risk that investors should keep on their radar, at least in the medium term, despite all the relief about the current calm in the financial sector.

Fantasy Enters the Chip Sector

More and more fantasy is coming into the chip sector at the moment. Infineon, Germany’s largest chip manufacturer, is looking positively into the future and has already raised its targets for the current quarter. Turnover is expected to increase to more than four billion euros. Infineon also wants to further increase margins and profits thanks to positive price effects and lower costs.

Infineon thus confirms expectations that the chip sector can hold its own even in times of crisis and in the midst of a weakening economy, because without semiconductors, for example, not much is possible in the topics of electromobility and energy transition. But the topic of artificial intelligence is also fuelling growth fantasies in the industry. ChatGPT & Co are currently driving the prices of shares such as Nvidia, Micron Technologies and TSMC.

Sentiment Test From the Companies is Coming Up

Inflation data is usually followed by the week of purchasing managers’ indices. On Monday and Wednesday there is the corresponding sentiment picture from US industry and the service sector. Also on Wednesday come the data from the Eurozone. They are a first test of sentiment from the economy after the collapse of Silicon Valley Bank, which could result in a credit crunch around the globe should other institutions now become much more cautious. On Thursday, most of the players on the financial market will say goodbye to a long Easter weekend, which is always a good opportunity to take profits.

DAX – Current Supports and Resistances

Supports: 15,400/15,350 + 15,250/15,200 + 15,050/15,000

Resistances: 15,550/15,600 + 15,700/15,750 + 15,800/15,850

This article is from RoboMarkets.