The German stock market benchmark, the DAX, edged higher on Tuesday, closing at 25,421 points, a 0.1% increase from the previous day’s close. While the index briefly touched a new all-time high of approximately 25,508 points mid-afternoon, it subsequently relinquished much of those gains, highlighting the fragility of investor sentiment despite a generally positive start to the year.
This latest peak marks the sixth all-time high for the DAX in just eight trading days since the beginning of the year, a statistic that has prompted cautious optimism among analysts. Christine Romar, Head of Europe at CMC Markets, suggested these early gains could signal a continuation of a bullish trend, potentially marking a fourth consecutive year of strong performance for the German index. This sustained rally, she observed, is partly bolstered by a reluctance among long-term investors to exit the market, despite previous years of exceptional gains. Many appear to have developed a detachment from the possibility of corrections.
The catalyst for Tuesday’s brief surge to the record high was the release of US inflation data, which, while exceeding the Federal Reserve’s target, provided a degree of reassurance to investors concerned about a resurgence in inflationary pressures. The reported 2.7% overall inflation rate and 2.6% core rate, while still elevated, tempered expectations of an imminent interest rate cut. However, Romar also cautioned about the inherent uncertainties surrounding the data’s accuracy, given the six-week gap in collection during the recent government shutdown. This has naturally fuelled doubts about the completeness of the figures, raising questions about the reliability of the underlying economic signals.
Amidst the broader market movement, Symrise and Zalando led the gains among Frankfurt-listed stocks, while Deutsche Telekom, Continental, Fresenius Medical Care and Heidelberg Materials lagged.
Beyond equities, energy prices demonstrated a notable upward trend. Natural gas futures for February delivery rose to €31 per megawatt-hour (MWh), a 4% increase, translating to potential consumer prices of approximately 8 to 10 cents per kilowatt-hour (kWh) if the upward trend persists. Crude oil prices also experienced a significant jump, with Brent North Sea crude reaching $65.70 per barrel, an increase of 2.9% compared to the previous trading day’s close. This increase is stoking concerns around potential inflationary pressures and impacts on consumer spending.
The euro weakened slightly against the dollar, trading at $1.1636, reflecting a comparative dollar value of €0.8594. These fluctuations underscore the complex interplay of global economic factors influencing European markets and highlight the delicate balancing act policymakers face as they navigate inflation, interest rate policy and geopolitical uncertainties. The sustained rallies, combined with data anomalies, warrant continued scrutiny and a critical assessment of underlying economic health rather than blind optimism.