DAX Takes a Tumble After Fed Gives Hawkish Guidance
The Fed cut interest rates as expected but the forward guidance for 2025 elaborated a slower path for monetary loosening.
- Fed press conference leaves hawkish message
- BfK Consumer Confidence improves mildly
- Macro fundamentals and price action still uncoordinated
The DAX lost 1.09% yesterday after the FOMC decision as the global stock market retreated on Powell’s comments.
Hawkish Stance for 2025
There had been some talk before yesterday’s meeting that the Fed was to give a more slow-paced view on interest rate cuts.
It’s possible the FOMC would have been more inclined to keep rates on hold given the recent events in US politics. However, that would have led to a far worse shock for the markets.
Powell made it clear that the FOMC would consider 2 rate cuts in 2025 rather than 4 cuts that the market had been pricing in. US stocks fell as treasury yields rose; the selloff reverberated through the global stock market.
With bond yields on the rise again, stocks lose some appeal, especially at current valuations.
DAX Live Chart
BfK Consumer Confidence Shows Some Improvement
Consumer Confidence published today by the BfK and NIM rose more than analysts’ forecasts. The number for January came in at -21.3 compared to forecasts of -22 and last month’s figure of 23.1.
Despite the better-than-expected figure, consumer confidence remains weak due to high food and energy prices.
Another factor weighing on consumer confidence is job security. Several large corporations, such as Volkswagen, have slashed production and cut costs, raising concerns that job cuts may also be on the line.
Macro Fundamentals Not in Line with DAX Price Action
The DAX has been experiencing a sustained rally through most of 2024, as German stock followed the AI-tech momentum.
However, fundamentals such as GDP Growth have shown contraction rather than expansion. The YoY GDP growth has shown 5 quarters of consecutive contraction since Q3 2023.
Given the number of companies cutting back production it seems unlikely January’s data for Q4 2024 will show expansion. Over the same period the DAX has gained 7.20%.
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