DAX Reaches New All-Time High on Positive US Inflation Data

Stocks around the world got a boost from a lower inflation rate in the US yesterday. The DAX reached a new high in today’s session, but will it last?

Yesterday’s US inflation data came in as expected at 3.4% from 3.5% previously. The decline in the US inflation rate is exactly what the stocks market were looking for.

In Powell’s last speech the message was that the Fed would wait and see where inflation data came out. Referring to when the central bank would start the loosening cycle. Yesterday’s inflation number gave the markets what they needed.

Moreover, it seems enough to assure the market that the Fed is on track to cut rates before the year, possibly starting in September. That’s the month the Fed Fund futures are pricing in with the highest possibility, at around 53%, of being the FOMC meeting producing the first cut.

That makes me wonder if a rate cut for the ECB in June is as likely as the market believes. Since rarely does the ECB lead monetary policy, it’s usually the Fed that makes the first move. The DAX is down 0.07% on the day after posting a new all-time high.

The momentum from yesterday may take off again next week, while between today and tomorrow we may see some profit taking. Inflation for the Eurozone will be published tomorrow morning.

I doubt we’ll see any surprises as usual; the YoY Core Inflation is expected to slow down to 2.7% from last month’s 2.9%. While the broader inflation rate is expected to remain at 2.4%, unchanged from last month.

The decline might be enough to reignite some bullish sentiment for the end of the week. However, as that number is already priced into the market, we’re more likely to a strong correlation with the main US indices.