The Dax opened weak on Monday morning, with the leading index calculated at around 21,135 points by 9:30 am, 1.2 percent below the closing value of the previous day.
“The weakness in China is affecting the highly valued KI companies in the US and is initially causing negative signs in Frankfurt”said Jochen Stanzl, Chief Market Analyst at CMC Markets. “The Chinese start-up Deepseek is showing the world’s Open AI how KI can be done with a low budget and may soon be free for all. The US technology index Nasdaq is falling by 2.3 percent in advance, signaling the end of the Trump euphoria in New York for the time being.”
“In the course of the week, the Dax could be forced into a stronger consolidation by monetary policy and the PCE inflation data from the US. The index has already risen by over 1,500 points in January and a certain rally fatigue is setting in among investors. The PCE report on Friday could be the tipping point, determining the direction of the monetary policy expectations and, in turn, the stock prices.”
Whether a further interest rate cut by the Fed will come, will strongly depend on the inflation data. The markets have been shifting their expectations for the next (and possibly last) interest rate cut from October to June in recent weeks. “It would be a severe disappointment if the core inflation in the PCE data did not confirm the decline reported about three weeks ago. The Fed may then decide to keep interest rates higher to ensure that inflation has indeed cooled down.”
“The general economic weakness and progress in inflation control bring the European Central Bank into a completely different situation this week. Investors are expecting four more interest rate cuts of 25 basis points each from the ECB this year, with the first step likely to be taken on Thursday.”
Donald Trump is just about to shift the economic and trade policy pillars visibly, which could also influence the monetary policy. It remains an open debate, as the volatility in monetary policy expectations since Christmas has impressively shown. “In the end, it could be a good idea for investors to regularly question the monetary policy hopes of the two major central banks”said Stanzl.
The European common currency was slightly weaker on Monday morning, with one euro costing 1.0474 US dollars and one dollar being worth 0.9547 euros.