DAX watch: Diplomatic talks in focus as euro dips

on Apr 1, 2015

The DAX opened with a sharp drop and a swift recovery today, as the euro dipped in light of continued speculation over Greece’s future in the eurozone and the implications of a potential Grexit. Investors also kept a close eye on crude oil prices, in respect of talks between Iran and six world powers, while upcoming US employment data is still expected to steal the show later this week.

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The DAX was up 0.68 percent at 12,047.00 points as of 09:51 BST today, after dropping as much as 0.74 percent earlier in the session. The Frankfurt exchange’s blue chip index is about 1.5 percent short of the all-time high, which was reached two weeks ago.
Investor focus was pinned to talks between Greece and its eurozone partners this morning, as it was reported that the beleaguered country failed to secure lenders’ backing for further financing. The country is running low on cash, with some sources claiming coffers will be empty by the end of April, while a number of maturing debt payments are due in May and August. A Euro Working Group conference call, which will reveal further details on the talks, is scheduled for later today.
Greek PM Alexis Tsipras’ planned visit to Moscow was brought one month forward to April 8, it was confirmed last month, a move interpreted by analysts as a clear indication that Athens is exploring alternative financing options. Officials affiliated with the new coalition have intimated that seeking a loan from Moscow or Beijing is a distinct possibility should talks with the current creditors fail.
If Greece leaves the eurozone, the scenario known as the ‘Grexit’, investors and politicians alike worry that the financially weaker members of the monetary union, such as Ireland and Portugal, could be in trouble, as speculative pressure will inevitably mount. This strain could expose further flaws within the eurozone, hence investors see the Grexit as the negative outcome of the crisis.
The EU has implemented a number of safety measures since Greece first required assistance, however, and now some see a Grexit as a positive for the currency. Billionaire investor Warren Buffett told CNBC on Tuesday that if Greece ended up leaving the eurozone, “that may not be a bad thing for the euro.”
As of 9:051 BST today, the euro had lost 0.09 percent to 1.07523 against the dollar, after climbing as much as 0.55 percent earlier in the session. The common European currency lost about 1.5 percent over the past three sessions.
Also drawing investors’ focus are the diplomatic talks between Iran and six world powers which are set to continue today, having overrun yesterday’s deadline to reach a deal. ‘Enough progress’ had been made to warrant an extension of the talks, officials said, with Russian Foreign Minister Sergei Lavrov saying all key aspects had been agreed.
“It will be put down in writing over the next few hours, maybe during the day,” Lavrov told Russia’s Tass news agency.
A breakthrough between Iran and the West could lead to a lifting of sanctions, which currently prevent the country from exporting most of its oil. Iran holds the world’s fourth-largest crude oil reserves, according to the US Energy Information Administration, and had exports of 2.5 million barrels per day in 2011 before sanctions trimmed shipments to 1.1 million by 2013. Lifting sanctions could flood the already oversupplied oil market with Iranian crude, pushing prices even lower in the midst of the near 60 percent slump since August.
As of 8:41 BST today, the Brent May contract was down 0.51 percent to $54.83 per barrel, while West Texas Intermediate futures had dropped 0.89 percent to $47.18.
Lower fuel costs benefit most companies, though transport firms, such as airlines, and the export-focused manufacturing sector, which accounts for more than 30 percent of the German economy, are tapping the most benefits out of dropping oil prices.
However, the dollar will most likely be the sweeping force with respect to the euro and European equities this week, with all eyes on a crucial US employment report due for release on Friday. A better-than-expected reading on the key nonfarm payrolls could send the greenback soaring, analysts suggest. The euro and the dollar have a very strong inverse correlation, hence a rising dollar tends to pressure the euro, boosting margins for export-oriented EU companies.
The top DAX gainer as of 9:00 BST was Thyssenkrupp, adding 1.67 percent to €24.843 per share. Commerzbank and Bayer were also upbeat, adding 1.3 and one percent, respectively. Meanwhile, Volkswagen was the biggest loser in morning trade, dropping 0.79 percent to €245.900 a share. Daimler and Adidas were also in the red, losing 0.7 and 0.2 percent, respectively.


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