– by Anika Ross and Daniela Pegna
Frankfurt (Reuters) – In the hunt for further records, DAX investors are setting their sights on the magical mark of 18,000 points.
Analysts still see room for improvement for the German leading index after its recent jump to the record of 17,429 points. Signs of economic weakness could dampen the mood in the coming week, while the flood of company balance sheets should provide momentum.
The bulls are currently firmly in control of the financial markets. The stock market hype surrounding the topic of artificial intelligence (AI) following the spectacular growth figures from the US chip company Nvidia had carried investors around the world. “Investors have gone into a real buying frenzy,” says Jürgen Molnar from broker RoboMarkets. On a weekly basis, the DAX gained 1.5 percent.
“The extent to which this high frenzy led by technology stocks carries global stocks forward will be influenced by monetary policy as well as by the fundamental environment,” summarize Helaba’s strategists. These two factors can always cause uncertainty among investors and therefore one or two setbacks. In Germany in particular, “the discrepancy between the stock market boom and the real economy is greatest,” says Helaba, with reference to the federal government’s growth forecast, which has been reduced to 0.2 percent. From October to December, German gross domestic product (GDP) shrank by 0.3 percent compared to the previous quarter. This means that the German economy is on the verge of a recession due to falling investments.
INTEREST HOPES KEEP THE RALLY GOING
In order to stimulate the economy in the euro zone, many investors are hoping that the European Central Bank (ECB) will soon cut interest rates. Central bank representatives have repeatedly pointed out that the timing of the interest rate turnaround depends primarily on the coming inflation and economic data. Therefore, monetary policy expectations are likely to be tested again in the new week with fresh data. Analysts assume that inflation in the euro area, which was 2.8 percent in January, has continued to fall slightly. The data will be published on Friday.
As price inflation declines, the ECB is gradually coming closer to its target of an inflation rate of 2.0 percent. “Inflation doesn’t have to be at two percent for interest rate cuts to go through, so we expect interest rate cuts this summer to boost corporate profits,” says investment expert Nathan Sweeney at asset manager Marlborough. The ECB has kept interest rates constant since September 2023 after a series of increases. The deposit rate that financial institutions receive when they deposit excess funds with the central bank is 4.0 percent.
US ECONOMY PRESENTS DATA
Incoming orders for durable goods (Tuesday), the second estimate of gross domestic product (Wednesday) and private household spending (Thursday) are likely to show the state of the US economy in the new week. “Even a mild recession has become unlikely in the USA,” said a Commerzbank comment. From their point of view, the easing of monetary policy should therefore be significantly less than previously expected. No longer are eight interest rate cuts expected, but rather five steps, three of them this year and two in 2025.
On Friday, the focus in the USA will be on the ISM manufacturing index. “This is still trending below the expansion threshold of 50. Any scratch at this threshold could cause current interest rate expectations to swing again,” says Helaba strategist Claudia Windt.
BALANCE SHAPE CONTINUES TO ROLL
On the corporate side, the accounting season continues. The German companies include Munich Re
A number of business figures are also expected from European companies, including Veolia, Bouygues, ASM International, London Stock Exchange and Erste Group. The doors of the Geneva Motor Show will also open on Monday.
(Edited by Christian Götz. If you have any questions, please contact our editorial team at [email protected] (for politics and economics) or [email protected] (for companies and markets).)