Germany’s DAX Rebounds as Bargain Hunters Seek Opportunities in Banking Sector

Key Takeaways

• DAX stocks rise with all sectors seeing gains.
• Deutsche Bank shares rebound by 4.7% as bargain hunters seek opportunities in Europe’s banking sector.
• Healthcare stocks, particularly Novartis, are the top gainers with a 5.7% climb.
• Cautious optimism remains among investors due to concerns about potential stresses in the banking system.

Overview

European stocks had a positive start to the new trading week after experiencing a significant drop on Friday. There was a sense of cautious optimism among investors.

By midday in London, the pan-European Stoxx 600 index had risen by 1.3% with all sectors seeing gains. Construction stocks increased by 1.5%, while banks and financial services went up by 1.4% and 1.3% respectively.

Although mining stocks had experienced losses earlier, they had returned to being flat after China’s industrial profit dropped sharply year-on-year.

As of 12:26 GMT, Germany’s Dax was trading at 15,148.21, which was up by 190.98 or +1.28%. The UK’s FTSE 100 Index had risen to 7,472.36, an increase of 66.91 or +0.90%. France’s CAC-40 Index was trading at 7,089.17, up by 74.07 or +1.06%.

Deutsche Bank Shares Rebound as Bargain Hunters Seek Opportunities in Europe’s Banking Sector

On Monday, First Citizens Bank agreed to buy a large portion of Silicon Valley Bank in the United States. The deal includes purchasing around $72 billion of SVB assets at a $16.5 billion discount, while approximately $90 billion in securities and other assets will remain under the FDIC’s control.

Despite the acquisition, investors are still wary of potential stresses in the banking system and fears of contagion. Last Friday, Deutsche Bank’s credit default swaps increased, causing a sell-off of their shares. However, on Monday morning, their stock was up by 4.7%.

According to Russ Mould, the investment director at AJ Bell, bargain hunters were seeking opportunities in Europe’s banking sector following recent chaos. Nevertheless, many investors remain cautious about the banking sector due to potential increased costs for banks from tighter regulation and more cautious bank lending, which could negatively affect the economy.

Over the weekend, the International Monetary Fund’s chief, Kristalina Georgieva, warned that risks to financial stability have risen. However, actions by advanced economies have helped to calm market stress.

Investors in the Asia-Pacific markets are analyzing the latest news from the banking sector in the U.S. and Europe, leading to mixed results. Meanwhile, U.S. stock futures are up after a successful week on Wall Street.

European Banks Rebound, Healthcare Stocks Top Gainers While China-Exposed Names Slip

European banks, including Deutsche Bank and UBS, saw a rebound in their shares on Monday, rising by 0.9% and 3.3% respectively.

Despite the gains, many investors remain cautious about the sector amid concerns about further distress.

European stocks are set to end the first quarter of 2023 with gains, but European banks are likely to end nearly flat due to the recent sector turmoil.

Healthcare stocks were the top gainers, with Novartis climbing 5.7% after the announcement of positive results for its breast cancer drug.

French telecom company Orange also rose by 2.8% after an upgrade from Morgan Stanley.

Shares of China-exposed luxury names and miners, such as Pernod Ricard and Rio Tinto, slipped after data showed a decline in Chinese industrial firms’ profits in the first two months of 2023.

Short-Term Outlook

The short-term forecast for the European stock market is moderately positive, with a possibility of continued gains.

The positive start to the new trading week and gains in all sectors, particularly construction, banks, and financial services, indicate a trend towards growth.

The rebound in Deutsche Bank’s shares, as well as gains in UBS and other European banks, suggests that bargain hunters are seeking opportunities in the banking sector, despite remaining concerns.

Healthcare stocks, particularly Novartis, are likely to continue their gains following the announcement of positive results for their breast cancer drug.

However, the decline in Chinese industrial firms’ profits in the first two months of 2023 could negatively affect China-exposed luxury names and miners.

Overall, the cautious optimism among investors suggests that the European stock market is likely to continue its upward trend, albeit with potential bumps along the way.