Yield Shock and Fourth Consecutive Loss: DAX Capitulates Below the 26,000-Point Mark!
The German benchmark index continues its painful descent undeterred. On Thursday, the DAX suffered its fourth losing day in a row, breaking through the psychologically immensely important support line of 26,000 points. Closing at 25,983 points with a deficit of 0.42 percent, buyers executed an orderly retreat. It is becoming ruthlessly clear: The center of gravity for this sell-off does not lie in corporate balance sheets, but rather in the increasingly volatile bond market, which is currently massively draining liquidity from the equity markets.
Toxic Macro Mix: Historic Bond Yields and the Specter of $100 Oil!
Yields on ten-year German Bunds recently climbed to 3.22 percent—their highest level since 2011. This is flanked by US long-term bonds, which are also hitting new multi-year highs. This dramatic surge in yields is fueled by a highly complex mix: The quick diplomatic resolution to the Iran conflict promised by the US President is increasingly proving to be an illusion. At the same time, spiraling government deficits and gigantic bond issuance volumes are forcing a significantly higher term premium. Accompanied by an escalating oil price that is marching relentlessly toward the critical $100 mark, the market simply lacks the necessary purchasing power to push the DAX higher against these fundamental headwinds.
Day of Destiny in the Bond Market: US Auction as the Ultimate Acid Test for Equities!
For today, Friday, the focus of traders shifts entirely to the highly anticipated auction of 30-year US Treasuries. This event is moving squarely into the spotlight of the financial world: If the hoped-for investor demand fails to materialize, this is likely to further exacerbate stress in the bond market and mercilessly increase the pressure on the DAX. The central question for the end of the week is therefore: Do the bulls possess the strength to defend the level around 25,983 points as reliable support, or will the unprecedented losing streak continue? The fate of the equity markets currently hangs inevitably by the thread of the fixed-income market.
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