DAX Index News: Bullish Run Hits Record 20,925; Focus Shifts to Trump’s Inauguration

DAX Hits Record High Amid ECB Rate Cut Bets and China Stats

Optimism over potential ECB rate cuts and China’s economic recovery offset concerns about US tariffs.

On Friday, January 17, the DAX rallied 1.20%, following Thursday’s 0.39% gain, closing at 20,903. Significantly, the DAX hit a record high of 20,925 before easing back, marking its fourth consecutive session of gains.

Sector Highlights

Siemens Energy AG led the charge, rallying 3.06%, with Heidelberg Materials advancing by 3.02% on upbeat data from China.

Airbus extended its gains from Thursday, rising 2.2% after Morgan Stanley included the stock in its top aerospace picks. MTU Aero advanced by 1.92%.

However, auto stocks had a mixed session. China’s GDP numbers fueled optimism for demand while US tariff threats lingered. Daimler Truck Holding gained 2.00%. BMW, Porsche, and Volkswagen also ended the session in positive territory. Meanwhile, Mercedes-Benz Group dropped by 0.13%.

China’s Economic Recovery Lifts Sentiment

On Friday, China’s data signaled a marked pick up in growth, fueling demand for riskier assets. China’s economy expanded by 5.4% year-on-year in Q4 2024, up from 4.6% in Q3 2024.

An improving demand environment could be a boon for German export-focused stocks.

Eurozone Inflation and ECB Policy Outlook

On January 17, finalized Eurozone inflation figures drew interest. The annual inflation rate increased from 2.2% in November to 2.4% in December, aligning with preliminary numbers. Despite the slight increase, the data supported speculation for rate cuts to boost economic activity.

Expectations of a January ECB rate cut and more monetary policy easing later in the year have been crucial to the DAX’s trajectory. Lower borrowing costs and a weaker EUR could boost company earnings and valuations.

The EUR fell 0.28% against the US dollar, closing Friday at $1.02669.

Oliver Rakau, Chief German Economist and ECB Commentator at Oxford Economics, noted that easing services inflation supports a dovish ECB stance, stating,

“The receding breadth of EZ services inflation continues to point to a sustained disinflationary trend despite the monthly services print showing a pick-up in December.”

As the main contributor to inflation, easing services inflation would support a more dovish ECB rate path.

German Producer Prices to Signal Demand Trends

Germany’s producer price data on Monday, January 20, requires consideration. Economists forecast producer prices to increase 1.1% year-on-year in December, up from a 0.1% rise in November.

Rising producer prices would signal an improving demand environment. Producers raise their prices in a less competitive environment, passing costs to consumers. While price trends reflect the demand environment, an uptick in inflationary pressures could temper bets on aggressive ECB rate cuts. A less dovish ECB rate path may affect demand for rate-sensitive German stocks.

US Markets Rally on Market Optimism

On Friday, January 17, US markets reversed their losses from Thursday on upbeat sentiment toward the US economy and Fed rate cut bets. The Nasdaq Composite Index rallied 1.51%, while the Dow and the S&P 500 gained 0.78% and 1.00%, respectively.

In the bond markets, 10-year US Treasury yields dropped to a Friday low of 4.566% before closing the week at 4.623%. The recent pullback in yields from 4.809% reflected sentiment toward the Fed rate path as core inflation softened in December.

Trump Inauguration Looms

On Monday, Trump’s inauguration will impact market risk sentiment. Aggressive tariff policies would raise import prices, fueling inflationary pressures. A more hawkish Fed rate path to counter Trump’s policies would increase borrowing costs, weighing on company earnings. Importantly, US tariffs would also affect global trade terms, impacting German export-related stocks.

Conversely, hints of gradual tariffs could offer market relief, benefiting German stocks.

Traders should also track comments from FOMC members. Insights into inflation, Trump’s policies, and the Fed rate path could impact risk sentiment.

Near-Term Outlook

The DAX’s performance will hinge on Trump’s inauguration, inflation signals, and central bank commentary. Higher inflation signals and hawkish ECB chatter could impact rate cut optimism, potentially dragging the index toward 20,500. Conversely, softer inflation and support for rate cuts may drive the DAX past 21,000.

External factors like potential stimulus measures from Beijing also remain critical. Additional stimulus measures from Beijing may support German exporters.

As of Monday morning, futures pointed to a testy European session. DAX futures were up 14 points, while the Nasdaq 100 mini dropped by 34 points.

DAX Technical Indicators

Daily Chart

After four consecutive gains, the DAX remains well above the 50-day and 200-day Exponential Moving Averages (EMAs), confirming bullish price trends.

A break above Friday’s high of 20,925 could pave the way for a move beyond 21,000. A breakout from 21,000 may enable the bulls to target the 21,500 level next.

German producer prices, tariff developments, and central bank commentary will influence DAX trends.

Conversely, a DAX drop below 20,750 may signal a fall toward 20,500, a crucial support level on January 16.

With the 14-day Relative Strength Index (RSI) at 71.94, the DAX sits in overbought territory (RSI higher than 70). Selling pressure could intensify at Friday’s record high of 20,925.

Conclusion: Key Drivers to Watch

Rate cut optimism and global economic factors remain key drivers for the DAX. Investors must closely monitor inflation-related data, ECB commentary, and geopolitical developments for further direction. However, Trump’s inauguration could set the tone for the weeks ahead.

Read our detailed analysis of how global market dynamics influence the DAX’s performance here.