Title: Examining the DAX: How Much Runway do Interest Rates and Figures Provide?
The ongoing restraint displayed by President Trump regarding tariffs has been boosting the stock market, thus far. However, the longevity of this situation remains uncertain. The term 'consolidation' is gaining traction, hinting at potential shifts in the near future.
At the forefront of the new week's stock market dynamic are Trump's leadership and key central bank decisions. Initially, the business community expressed relief when Trump refrained from enforcing concrete tariffs, and his conciliatory tone toward China propelled indices like the German DAX to new heights. By Friday, the DAX climbed around 3% to 21,520 points, ignited by Trump's potential for business-friendly policies.
"US President Trump has ignited a rally with the prospect of business-friendly policies," according to Helaba strategist Claudia Windt. Despite the persistent tariff risk, it appears that escalation isn't the immediate action of choice. Some analysts, however, foresee potential corrections or price fluctuations due to the strong momentum, given the circumstances.
Previewing the coming week, central bank decisions could set the tone, with the European Central Bank scheduled to lower interest rates again on Thursday. Meanwhile, the US Federal Reserve may pause its rate schedule a day earlier, setting it on a collision course with Trump's push for further rate reductions to bolster the American economy.
Experts see no pressing need for rate adjustments given the robust labor market. Instead, the Fed could take a calm approach, carefully scrutinizing the early moves of the Trump administration's economic policy. In Windt's opinion, deep monetary easing might be necessary in 2025, but the extent is uncertain.
The US economy has shown resilience lately. Inflation figures will be in focus this week, with the core personal consumption expenditures price index scheduled to be released on Friday. On Tuesday, durable goods orders will provide insight into the condition of the industry.
At the ECB, analysts foresee further rate decreases despite persistent inflationary pressures, especially given the challenging economic climate. The Munich Ifo Institute may report more gloomy data on Germany's economic conditions on Monday, which had already marked its lowest level since May 2020 in December.
German economic optimism is unlikely to recover in January, according to Dekabank analyst Ulrich Kater. On Wednesday, the GfK consumer climate index is scheduled to be released, and on Thursday, GDP forecasts for Germany and the Eurozone will be disclosed. According to Commerzbank economist Vincent Stamer, the ECB's interest rate cuts have not yet yielded noticeable benefits for the economy, but these effects may become apparent in the second half of the year.
Earnings season continues for European companies, with an average 1.5% profit increase expected for the final quarter. Strong earnings could further boost stock markets, as expert Matthieu Dulguerov, Head of Equities at REYL Intesa Sanpaolo, predicts. Dulguerov also highlights that European companies are less reliant on European economic growth, given their global exposure.
Luxury giant LVMH, computer chip equipment manufacturer ASML, along with pharmaceutical companies such as Roche, Novartis, Sanofi, and Shell, will soon unveil their financial results. On Tuesday, SAP, the DAX's most valuable company, and later Deutsche Bank will both present their earnings. Additionally, tech giants like Microsoft, Meta, Tesla, IBM, and Apple will deliver their financial reports, which may influence global stock market sentiment.
Markets in China are gearing up for the Spring Festival, or Chinese New Year, which begins on Tuesday for one week. The closing of Chinese exchanges could cause minor market adjustments.
The Fed's upcoming decision on interest rates could potentially clash with Trump's push for further rate reductions, adding a layer of uncertainty to the stock market dynamic. The Fed, as stated by Helaba strategist Claudia Windt, might adopt a cautious approach, scrutinizing the initial moves of Trump's economic policy.
In view of the upcoming Fed decision, there are speculations about The Fed's potential stance towards interest rates, as experts see no pressing need for rate adjustments at the moment.
