Ggetting used to something you don’t want to get used to is a terrible thing. And yet it is above all patterns of habituation that can be seen everywhere if you look back at the development of the financial markets over the past year. On February 24, 2022, Russia’s war of aggression against Ukraine began. In the following March in particular, financial markets around the world reacted with extreme swings. At times, gold cost more than $2,000 per troy ounce (31.1 grams), the price of oil rose to an incredible $130 per barrel (around 159 liters) for the North Sea Brent variety. And on the German stock market, the leading index Dax experienced a real slump to less than 13,000 points.
Now, one year after the start of the war, the Dax is more than 10 percent higher at a good 15,300 points. Oil and gas are even cheaper than before the war. And despite all the geopolitical risks, the gold price has not managed to even approach the $1,900 mark again. At least “until now”, as the financial markets have become accustomed to saying – but the longer the war lasts, the more preliminary assessments seem to be becoming more permanent ones. The people of Ukraine continue to endure the suffering and horror of this war every day. So why are share prices in Germany higher now than they were a year ago – even though Germany has undoubtedly become poorer as a result of the war?
“Of course, the price shock has made us poorer as a country, and households have tightened their belts,” says macroeconomist Moritz Schularick from the University of Bonn. Especially in the last quarter of 2022, private consumption in Germany fell, which was not surprising in view of the real wage losses in the past year. All in all, however, it is a decline in economic output that does not deserve the word “crisis”, says the economist: German industry in particular got through the year relatively well, despite the decline in energy-intensive areas.
Last year, Putin’s attack on Ukraine caused the stock markets to collapse, primarily because of fears that the gas tap would be turned off, explains Jörg Kraemer, chief economist at Commerzbank. “Prices only began to recover in October, when it became apparent that we would be spared a gas shortage and thus a severe recession.” This “pricing in” and later “pricing out” of a threatening gas shortage was a key driver of share prices.
The Dax lives on natural gas
Ulrich Stephan, Deutsche Bank’s chief investment strategist for private and corporate customers, cites three arguments as to why the Dax is doing quite well again: First, the German economy grew by 1.8 percent last year; the worst fears of a gas shortage were not confirmed. Not only the chemical industry, but the entire Dax correlate significantly with the gas prices. In addition, the Dax is a “cyclical index”: it benefits from the economic prospects, which have increasingly improved. And thirdly, the Dax companies generated more than 20 percent of their sales in the Asia-Pacific region – which is why the reopening of China will particularly benefit them.
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