Germany 40

Global stock markets have started the new week on an uneasy footing for the most part, although US technology sector was staging a recovery attempt. European equities have been firmly lower in this first half of Monday’s session, with the CAC 40 and IBEX among the biggest fallers as renewed political and fiscal concerns in France weigh on sentiment. The German DAX index was also down, while US indices had given up a good chunk of their sharp overnight gains, with the Dow futures turning negative, leading to a lower cash open. The Nasdaq and S&P 500 posted decent gains at the open after last week’s heavy losses, but the recovery looks fragile given the lingering pressure on technology stocks and growing doubts about the AI investment boom.

Global indices managed to bounce back towards the end of the week as risk mood improved following Thursday’s drop in bond yields and a slight decline in oil prices. But by late Friday afternoon, oil prices had made back most of Thursday’s drop and the bond markets remained under some pressure as European bourses closed for trading.

Markets went from risk off to risk on yesterday afternoon and we have since kicked on with some follow-up buying of stocks, gold and silver, while the dollar has also shown signs of weakness. Risk appetite turned positive after bond yields and oil prices both retreated yesterday.

U.S. 10-year and 30-year bond yields have moved higher as markets reopen after the Labor Day weekend, with the producer price index and the consumer price index landing within days of each other. The European Central Bank decision sits between them, where the economic projections and Christine Lagarde's press conference carry more market risk than the rate move itself. The DAX has also broken below its 21-day exponential moving average, a sign that momentum beneath a resilient index is starting to fade.

Following a weak handover from Asia, European markets and US indices were under pressure this morning, as rising oil prices and elevated bond yields once again weighed on risk appetite. Among the major European indices, the German DAX will be in firm focus this week, with the ECB’s rate decision coming up on Thursday. That decision is likely to be a hike, as rising oil prices threaten to re-accelerate inflation.

The German DAX record high is back in reach after four straight higher sessions, helped by cheaper energy and resilient eurozone data.

But the question, of course, is how much further oil prices and bond yields can fall. For now, the combination is supportive of risk assets and is helping to sustain a relatively benign decline in the dollar. The focus today will be on US core PCE inflation, due for release shortly, while Nvidia’s second-quarter earnings will provide another test for risk appetite after the US markets close – not just for US indices but for global tech-heavy indices given the influence Nvidia has over the global tech and AI names.

European equities are selling off because crude oil, natural gas and government bond yields are all signaling a prolonged energy supply disruption.

If oil prices continue to rise, this could weigh on European markets which have been quite resilient of late. That could weigh on the German DAX forecast given the nation’s reliance on energy imports.

Crude oil and bond yields are both climbing while the Strait of Hormuz stays shut, yet global equity markets have barely reacted.

Volatility across financial markets continues to subside, with investors appearing surprisingly comfortable with rising oil prices and the prospect of the Fed either holding rates steady or tightening policy in September.

After a long and eventful first half of the year dominated by the US-Israel war on Iran and Trump’s constant flip-flopping, the last thing investors, and frankly anyone else, needed with the summer holidays approaching was a return of the same geopolitical environment. Unfortunately, it looks like we could be heading back to that. Crude oil has spiked over the last couple of sessions having just returned to pre-war levels just a few days ago, while European indices such as the DAX and Ibex were nursing losses of 2-3% at the time of writing.