By Geoffrey Smith
Investing.com — German stocks are back in a bull market.
The benchmark index rose nearly 1% on Monday after the European Commission cleared Berlin to nationalize a former unit of Russian gas monopoly Gazprom (MCX:), bolstering efforts by Europe’s largest economy to restore power. order in its energy market after the chaos caused by Russia. war in Ukraine.
As a result, the DAX is now up more than 20% from its late September lows, the classic definition of a bull market. This is despite growing evidence that the German economy is sliding into recession, with corporate profit margins hurt and battered by sharply rising energy costs this year.
Among Monday’s big winners was online fashion group Zalando (ETR:), which has continued its rally since posting stronger than expected earlier this month, while pharmaceutical company Merck KGaA (ETR:) also extended its gains after its results last week. Merck stock rose 4.5%, while Zalando stock rose 3.8%.
The DAX is supported by a strong rally in the as market participants scale back expectations for further US gains after October’s weaker-than-expected reading last week. That’s despite a stern warning from Federal Reserve Governor Chris Waller over the weekend that the CPI print represented “just one data point” and stressed that there was still “some way to go.” browse” before the Fed can stop raising interest rates. The euro rose 4.5% last week and fell just 0.3% on Monday in response to Waller’s comment.
The DAX, full of big exporters, generally benefits from a cheap euro, but has had too many good things this year, as the euro’s fall to a 20-year low only amplified the effects of the soaring prices of oil and gas imports, which are invoiced in dollars.
The euro is expected to receive a further boost later this week when the European Central Bank announces the early repayment of so-called TLTRO loans by eurozone banks, a development that will tighten financial conditions in regional markets by draining liquidity. excess.
Until the last ECB meeting, banks had been incentivized to hold on to their TLTRO funds because they were the cheapest source of funding available, extended at rates as low as -1%. However, the ECB has retroactively changed its fees on these loans, aligning them with its deposit rate, which now stands at 1.5%.
“This will significantly increase TLTRO costs, up to 200 basis points,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said via Twitter. “Assuming a 2.50% peak in the deposit rate in 2023, the total cost of TLTROs from November 2022 will rise from €12 billion under the previous rules to over €40 billion if banks keep their borrowings to maturity – an increase of 30 billion euros.”
As of Friday, some 2.113 billion euros in TLTRO loans were still outstanding.
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