DAX set for cautious end to the week as fast lane turns into roundabout

The DAX is expected to open Friday’s session at around 25,444 points. The lead from Asia is relatively subdued, with major markets in China and South Korea closed for holidays. In Japan, exporters are benefiting from the persistently weak yen, while rising Japanese government bond yields are increasingly becoming a drag on the equity market.

In Europe, fresh diplomatic signals surrounding the conflict with Iran could provide some relief. Talks about a possible reopening of the Strait of Hormuz could ease some of the pressure on oil prices following their recent sharp rise. For investors, this remains a crucial factor. Any easing in the oil market immediately reduces inflation concerns and, in turn, pressure on bond yields.

Ahead of the weekend, however, investors are likely to remain cautious and highly selective. Energy prices and bond yields remain the two key drivers for equity markets. At the same time, the GfK Consumer Climate Index came in significantly weaker at minus 30.6 points, compared with expectations of minus 27.2. Consumer reluctance in Germany therefore remains pronounced and could weigh on consumer-related stocks.

Many investors had hoped for more from the meeting between the US and China. There were no major breakthroughs, although the existing trade truce was extended until January. In the current environment, that should not be underestimated. Sometimes, the absence of fresh bad news is already good news for equity markets. Relations between the world’s two largest economies therefore remain, at least for now, one of the few geopolitical constants.

Global equity markets, once resembling fast-moving highways, have been turned into a roundabout by an ever-growing number of roadworks. Energy prices, bond yields, inflation, the conflict in the Middle East and concerns about economic growth are sending investors from one issue to the next without any clear direction emerging. A sustainable exit therefore does not necessarily require new positive catalysts. First, some of the existing headwinds need to disappear.

This afternoon, attention will turn to the University of Michigan Consumer Sentiment Index and US durable goods orders. Following the recent resilience in purchasing managers’ indices, investors will be watching closely to see whether the industrial data also confirm the strength of the US economy. The familiar dilemma remains: excessively strong data could push bond yields higher again, quickly turning good economic news into another headwind for equity markets.