DAX before weekly minus: ECB interest rate hike and Middle East crisis weigh on markets

The broker IG estimates the German leading index 0.2 percent lower to 25,322 points before the start of Xetra trading. The DAX lost 0.8 percent to 25,361 points yesterday. This means that it is currently heading for a significant weekly loss. The high energy prices are depressing the mood. In addition, the European Central Bank (ECB) raised interest rates for the second time this year. Although this move was expected, investors fear further tightening of monetary policy given the persistently high inflation.

For market strategist Salah-Eddine Bouhmidi from broker IG, the crucial question now is: "Does the ECB have to step up in December? Another interest rate hike is already on the cards. However, every additional step carries the risk of slowing down the economy more. The combination of stubborn inflation and higher financing costs remains a negative factor for the DAX.

"Since, according to the monetary authorities, inflation is expected to remain well above the target value of two percent for a longer period of time, the futures markets expect three further interest rate hikes of 0.25 percentage points each by June 2027," says Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank.

The escalation in the Middle East is giving investors no breathing room, oil prices continue to rise: oil transport through the Strait of Hormuz remained restricted following mutual attacks by the USA and Iran. In addition, the Iran-aligned Houthi rebels took control of the Yemeni port of Mocha, threatening Saudi oil exports in the Red Sea.

On the raw materials market, Brent crude oil from the North Sea rose in price by 0.2 percent to $107.88 per barrel (159 liters). US oil WTI was 0.2 percent higher at $102.73.

In addition, there are rising bond yields that are weighing on the stock market: the yield on ten-year US government bonds rose by two basis points to 4.9708 percent, reaching its highest level in three years. 30-year bond yields climbed to a 19-year high of 5.3803 percent. Yields are rising as markets put the chances of the Fed raising interest rates this month at around 70 percent.

The result: stocks become less attractive compared to supposedly safer investments such as bonds when interest rates rise. Investors are responding by reducing equity positions and purchasing bonds as an alternative.

The specifications from the USA are correspondingly weak. Concerns about an interest rate hike by the US Federal Reserve have caused losses on Wall Street. The Dow Jones index of standard stocks closed 0.6 percent lower at 52,064 points. The broader S&P 500 fell 0.6 percent to 7,592 points. The Nasdaq technology exchange index lost 0.7 percent to 26,082 points.

Investors are nervous as US inflation data for August is due to be released early this afternoon. Meanwhile, according to the price portal GasBuddy, the average diesel price in the USA rose above the six dollar mark per gallon (1.36 euros per liter) for the first time yesterday. The record prices are likely to fuel inflation again along the entire supply chain, explained GasBuddy analyst Patrick De Haan.