ECB runs parade into the record DAX rally

Stock exchange in Frankfurt - ECB runs parade into the record DAX rally

The European Central Bank got in the way of the DAX on its record-breaking run. Unlike the US Federal Reserve, there were no clear signals from the European monetary authorities that interest rates would be cut soon. After jumping above the 17,000-point mark for the first time, this hampered the initially unleashed investors over the course of the day.

After rising by up to 1.4 percent, the leading German index settled just in the red. It ended trading 0.08 percent lower at 16,752.23 points. At its peak, it rose to 17,003 points, temporarily extending its year-end rally to more than 16 percent. In contrast, the MDax rose by 2.92% to 27,198.24 points. There was some catching up to do here, as it has gained significantly less than the Dax this year.

Aggressive expectations

The ECB left interest rates in the eurozone unchanged for the second time in a row. Unlike the Fed the previous evening, however, the Europeans did not openly admit to discussing interest rate cuts within their ranks. According to ING economist Carsten Brzeski, President Christine Lagarde has thus pushed back aggressive interest rate expectations. The market said that investors were now again pricing in a reduction in the eurozone key interest rate by less than 1.5 percentage points for 2024.

"Today's meeting marks the end of the current rate hike cycle. However, it also shows that there is still a long way to go before the ECB starts to cut interest rates," Brzeski concluded. The monetary authorities have probably learned from past mistakes and are now not rushing into the prospect of extensive interest rate cuts.

The initial advance of the DAX above the 17,000 mark was justified by surprisingly clear words from the Fed. According to their statements, around three interest rate cuts are on the cards in the USA in 2024. According to market observer Andreas Lipkow, attention is now turning to the expiry date on the futures exchanges. This has the potential to cause further fluctuations on the international financial markets on Friday.

Real estate stocks defend gains

Among individual stocks, the interest rate fantasy remained intact in some cases. Real estate stocks, for example, defended price gains because financing conditions are becoming more favorable again as interest rates fall. This reduces costs and can boost demand on the housing market again. Vonovia shares, for example, climbed 7.8 percent in the DAX. Patrizia shares in the SDax even gained more than 16 percent.

However, Siemens Energy and Zalando topped the Dax rally with a rise of more than nine percent each. These two stocks have been among the three biggest losers in the leading German index so far in 2023. They are also generally counted among the more interest rate-sensitive index members.

On the other hand, a report in "Der Spiegel" about a possible sale of government shares weighed on two DAX stocks: Deutsche Telekom shares lost 3.6 percent and DHL shares fell 1.1 percent. According to the magazine, the German government wants to use the sales to finance the restructuring of Deutsche Bahn.

Record high for Dow Jones

The Eurozone's leading index, the EuroStoxx 50, ultimately posted a gain of 0.2 percent. At country level, two stock exchanges stood out positively: Paris' leading index, the Cac, rose by 0.6 percent and London's FTSE 100 rose by as much as 1.3 percent. The focus there was also on the interest rate decision by the domestic central bank. In New York, the Dow Jones recorded its next record high. It recently rose by 0.3 percent.

The euro reacted positively to the ECB's decision, recently reaching the 1.10 dollar mark. The ECB had set the reference rate at 1.0919 (Wednesday: 1.0787) dollars.

On the bond market, the current yield fell from 2.24 percent the previous day to 2.08 percent. On the other hand, the Rex bond index rose by 0.84 percent to 127.89 points. The Bund future recently rose by 0.02 percent to 136.36 points.