Dax Index News: Eurozone Inflation Sparks Debate on ECB Rate Path Outlook

DAX Extends Gains on Rate Cut Optimism

Optimism toward potential ECB and Fed rate cuts boosted demand for German stocks, countering concerns about US tariffs.

On Thursday, January 16, the DAX advanced by 0.39%, following Wednesday’s 1.50% rally, closing at 20,655. Significantly, the DAX hit a record high of 20,675 before easing back.

Sector Highlights: Gains in Tech and Retail, Auto Stocks Struggle

Online retailer Zalando rallied 8.57% as investors reacted to the company expecting 2024 profits to exceed its forecasts.

Airbus advanced by 1.80% after Morgan Stanley included the stock in its top aerospace picks. MTU Aero benefited from the news, gaining 1.76%.

However, auto stocks ended the session in negative territory amid ongoing US tariff jitters. Mercedes-Benz Group slid by 2.02%, with BMW declining by 1.04%. Porsche and Volkswagen also posted losses.

German Inflation Challenges ECB Rate Cut Bets

Germany’s annual inflation rate rose from 2.2% in November to 2.6% in December. The pickup in inflationary pressures tested market bets on multiple ECB rate cuts, pressuring the DAX.

However, the ECB’s monetary policy meeting minutes bolstered investor optimism for further rate cuts, boosting demand for German stocks.

ING Economics commented on the ECB minutes, stating,

“Doubts about the eurozone economy and increasing concerns about inflation undershooting support the ECB’s easing bias. Another 25bp rate cut at the upcoming meeting looks likely.”

Focus Shifts to Eurozone Inflation Data

On Friday, January 17, finalized Eurozone inflation figures will draw interest. The annual inflation rate increased from 2.2% in November to 2.4% in December.

An upward revision to inflation could temper bets on a January ECB rate cut, potentially weighing on rate-sensitive stocks. Conversely, a downward revision could signal a more dovish ECB rate path, boosting demand for German stocks.

The ECB’s interest rate decisions affect borrowing costs, corporate earnings, and valuations. Investors should monitor ECB commentary for further insights into inflation and rate path.

US Retail Sales and Jobless Claims Test Dovish Fed Bets

On Thursday, jobless claims and retail sales figures reflected economic resilience, suggesting a less dovish Fed rate path.

Initial jobless claims increased from 203k (week ending Jan 4) to 217k (week ending Jan 11). While weekly claims were higher, the 4-week average declined, signaling a resilient US labor market.

Retail sales rose 0.4% in December after increasing by 0.8% in November. Despite the pullback, upward trends in consumer spending may fuel demand-driven inflation. A higher inflation outlook could delay Fed rate cuts.

The DAX reacted to the data, dropping below 20,600 before a late rebound on ECB and Fed rate cut hopes. Wednesday’s US CPI Report and the ECB monetary policy meeting minutes resonated.

US Markets Retreat on Profit-Taking

US markets posted losses on Thursday, January 16, 2025, amid uncertainty about the Fed rate path. The Nasdaq Composite Index dropped by 0.89%, while the Dow and the S&P 500 fell 0.16% and 0.21%, respectively.

In the bond markets, 10-year US Treasury yields trended lower. However, the pullback failed to boost demand for riskier assets, highlighting market uncertainty. While US core inflation softened in December, concerns about Trump’s policies fueling inflation influenced risk sentiment.

US Housing Market in Focus

In Thursday’s US session, housing sector data could influence market sentiment. Economists consider the sector a barometer for the US economy.

Weaker-than-expected housing starts and building permits could indicate softening demand, potentially weighing on house prices. Falling house prices could affect consumer sentiment and spending. Conversely, upbeat figures could fuel bets on a more hawkish Fed rate path.

Traders should also track FOMC member commentary. Reactions to December’s US CPI Report and insights into the Fed rate path could impact market sentiment.

Near-Term Outlook

The DAX’s performance will hinge on inflation data, labor market trends, and central bank commentary. Persistent inflationary pressures could undermine rate cut optimism, pushing the index below 20,500. Conversely, softer economic data may drive the DAX toward 20,750.

External factors such as US tariff developments and potential stimulus measures from China also remain critical. Fresh policies from Beijing or reduced trade tensions could improve the outlook for German exporters.

As of Friday morning, futures pointed to a positive European open. DAX futures were up 31 points, while the Nasdaq 100 mini advanced by 48 points.

DAX Technical Indicators

Daily Chart

After three consecutive daily gains, the DAX sits well above the 50-day and 200-day Exponential Moving Averages (EMAs), affirming bullish price signals.

If the DAX returns to Thursday’s record high of 20,675, it could enable the bulls to target 20,750 next. A break above 20,750 may signal a move toward the 21,000 level.

Eurozone inflation data, tariff developments, and central bank commentary will influence DAX trends.

Conversely, a DAX drop below 20,500 may bring 20,000 and the 50-day EMA into sight.

With the 14-day Relative Strength Index (RSI) at 67.33, the DAX may climb to 20,675 before entering overbought territory (RSI higher than 70).

Conclusion:

Rate cut optimism and global economic factors will continue to dictate the DAX’s trajectory. Investors should closely monitor inflation data, ECB commentary, and geopolitical developments for further direction.

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