Germany’s DAX index weakened on a weekly basis as the uncertainty of potential outcomes between Ukraine and Russia continues to worry investors.
The war between Ukraine and Russia is slowing the hawkish pace of the European Central Bank, which affirmed its commitment to ensuring price and financial stability on Thursday.
Russia’s attack on Ukraine remains in focus
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Germany has decried Russia’s attack on Ukraine, and many European countries are considering further toughening its sanctions, including disconnecting Russia from the SWIFT international banking system.
SWIFT is a global network used by almost all financial institutions worldwide to wire sums of money to each other and is a cornerstone of the international payments system.
European Commission President Ursula von der Leyen said that Russian assets in the EU would be frozen, while the latest round of sanctions also targets the Russian economy’s access to key technologies and markets.
DAX has recovered from its lows reached last week but remained below where they were when fears of an invasion were first flagged. The risk of another decline still persists, especially if the situation worsens, and investors will continue to watch this situation very carefully.
The Ukraine crisis also complicates the outlook for how aggressively the European Central Bank would normalize monetary policy to fight inflation.
European Central Bank president Christine Lagarde signaled this month that interest rate hikes this year were not ruled out after the policymakers finally concluded that inflation had spread more than previously expected.
As for the whole of Europe, rising inflation is a threat to the German economy, but European Central Bank’s decision has become more difficult amid the Russian invasion. Seema Shah , Chief Global Strategist at Principal, said:
For policymakers, it becomes a matter of prioritization, and it is likely that they will focus on the risks to growth rather than the risks to inflation in the short term. Russia’s invasion of Ukraine inflicted a violent blow to eurozone banks which experienced their worst day of trading since the COVID-19 March 2020 market crash.
DAX remains under pressure
DAX index weakened last trading week, but it continues to trade above 14,500 points. Further turmoils should not be discounted, and if the price falls again below the 14,000 support level, the next target could be around 13,500 or even 13,000.
Summary
The war between Ukraine and Russia continues to keep investors in a negative mood, and further turmoils for the Dax index should not be discounted. The Ukraine crisis also complicates the outlook for how aggressively the European Central Bank would normalize monetary policy to fight inflation.
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