DAX expected back below 26,000 as Middle East tensions persist

Oil prices remain the Achilles’ heel of financial markets. News from the Middle East is not only adding a risk premium to crude prices but is also driving bond yields higher. There are no signs of tensions easing. Instead, the region has seen a renewed series of retaliatory attacks, with tankers and military bases coming under fire.

The potential knock-on effects of rising energy prices are increasing the risks to economic growth in both Europe and the United States, while simultaneously putting pressure on central banks to keep inflationary risks in check through further monetary tightening. This, in turn, is weighing on bond prices, pushing yields higher and effectively putting a ceiling on equity markets. There is one notable exception: investors continue to buy technology stocks, with a clear focus on semiconductors and artificial intelligence.

The European Central Bank is set to raise its key interest rates by 25 basis points on Thursday, with expectations therefore particularly high ahead of Christine Lagarde’s subsequent press conference. Markets will be especially interested in her assessment of the inflation outlook and what it could imply for the future path of monetary policy.

Today’s economic calendar is relatively light, meaning oil prices are likely to remain the key driver of trading. From a technical perspective, against this backdrop, the DAX could trade within a range of 25,750 to 25,950 points today.