The German DAX index edged upwards on Thursday, closing at 25,352 points – a 0.3% increase from the previous day’s close. While the index fluctuated around the prior day’s level throughout the trading session, a late afternoon rally ultimately pushed it higher. However, analysts caution against interpreting the gains as a clear signal of robust economic recovery.
Christine Romar, Head of Europe at CMC Markets, characterized recent economic data as “neither surprising nor particularly strong” acknowledging a return to positive growth after two years of recession. The 0.2% GDP growth recorded last year, while welcome, hasn’t spurred widespread investor optimism. Rather, the market appears to be pricing in expectations of a more significant economic upswing this year, effectively breaking the DAX out of its sideways trend observed during the latter half of 2023.
Romar’s assessment, however, carries a significant caveat. She warned that projections regarding the impact of massive planned investments in infrastructure and defense are speculative. “The timing of when these investments will truly translate into economic activity remains uncertain” she stated. Crucially, she emphasized the urgent need for structural reforms across key sectors including energy, bureaucracy and the labor market. Without these reforms, she suggested, the proposed “special funds” – a controversial financing mechanism – might only generate a fleeting and ultimately disappointing economic stimulus. Such a scenario would risk premature and inflated market enthusiasm, jeopardizing the potential for a fourth consecutive strong year for the stock market.
The day’s trading saw RWE, Vonovia and Siemens Energy leading the gainers, while Fresenius, Commerzbank and Mercedes-Benz lagged at the bottom of the list.
Elsewhere, energy prices presented a mixed picture. Natural gas prices climbed, with February delivery reaching €33 per Megawatt-hour (MWh), a 4% increase. This elevates consumer prices to a minimum of 8 to 10 cents per kilowatt-hour (kWh), inclusive of taxes and surcharges should this price level persist. Conversely, the price of Brent crude oil experienced a sharp decline, falling to $63.79 per barrel – a decrease of 4.1% from the previous day’s close.
The Euro also weakened against the US dollar, trading at $1.1608, representing a slight depreciation of the single currency. The market’s sensitivity to these factors highlights ongoing concerns regarding Germany’s economic trajectory and the potential for future volatility as the country attempts to navigate a complex interplay of investment, reform and global economic pressures.