Xetra Dax near correction territory as euro rally continues

The sustained rebound in the euro took a further toll on some of the currency area's biggest exporters on Thursday, leaving Frankfurt's main equities index within sight of correction territory.

Measured to the trough of Thursday's trading, the Xetra Dax 30 is down 9.3 per cent from its record peak reached on April 10, taking it to the brink of the commonly accepted definition of a correction, a decline of 10 per cent.

The index's main multinationals and big-name exporters were once again its biggest fallers. On Thursday, BMW shares were down 2.7 per cent, while Volkswagen lost 0.9 per cent and Adidas was down 0.4 per cent. Overall, the index was down a further 0.2 per cent to 11,329.92.

The euro spent time above the $1.14 level, which it last scaled in February. Signs of improving economic activity since the start of the European Central Bank's quantitative easing stimulus programme in March - coupled with a rebound in the region's sovereign bond yields - has prompted traders to close short positions in the shared currency.

Since April 13, the single currency is up over 8 per cent to Thursday's session high of $1.1430. The appreciation of the euro reflects the recent downturn in the US dollar, which plumbed a three-month low on Thursday against its major rivals, and also sharply higher government bond yields.

The yield on Germany's 10-year Bund was at 0.73 per cent, near the upper end of its recent range that has propelled the benchmark from a low of 0.05 per cent less than a month ago.

"Until Bund yields peak, we can't think about calling a top in the euro," said Kit Juckes at Societe Generale. "We haven't flushed out all the dollar-longs yet, nor have we, apparently, flushed out all the Bund longs."

The region-wide FTSE Eurofirst 300 equity benchmark fell 0.7 per cent to a session-low on Thursday of 1,559.99, taking its losses since its April 15 high to 5.7 per cent.

German exporters were also the biggest fallers on the international index, joined by London-listed miners, which remain sensitive to the outlook for global growth.

Economists are expecting domestic demand to set the pace for overall German growth in 2015, and exports to continue to struggle.

Reinhard Cluse, economist at UBS, said Wednesday's data showing "surprisingly weak" GDP expansion of 0.3 per cent in the first quarter showed "that German GDP growth will likely be dominated by domestic demand this year, with a neutral or even negative growth contribution from net exports".

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