The German stock market has reached a record high. Once again, it is monetary policy that is giving prices a boost.
Falling key interest rates have pushed the DAX above the 19,000 point mark for the first time. The German benchmark index rose today by 1.3 percent to just over 19,000 points. In mid-March, the DAX cracked the 18,000 point mark, and in mid-December last year it cracked the 17,000 point mark. The previous evening, the US Federal Reserve announced a relatively large interest rate cut. This is the first time since the outbreak of the corona pandemic that the key interest rate has been reduced, and the Fed is moving toward further interest rate cuts this year. Last week, the European Central Bank also cut interest rates.
Prospect of falling interest rates good news for stock market traders
The prospect of falling interest rates is good news for equity investors. Stocks are becoming more attractive again compared to fixed-interest securities. Loans are becoming cheaper, companies can therefore finance themselves more easily and investments are becoming more affordable.
And the signs point to further monetary policy easing by the central banks and thus to improved financing conditions. The inflation rate in Germany has recently fallen below the 2 percent limit. According to an initial estimate by the Federal Statistical Office, the inflation rate in August was 1.9 percent. In July it rose to 2.3 percent, after 2.2 percent in June.
The German inflation rate, calculated according to uniform European standards, fell to 2.0 percent in August. The ECB’s inflation target for the eurozone is two percent. The markets are speculating on the next interest rate cut in September.
Contrast to the poor economic situation
The development on the stock markets contrasts with the poor economic situation in Germany. However, stock investors are often not necessarily focused on the current situation, but rather on future profits. In addition, most of the 40 companies listed in the DAX are international: Germany is therefore just one market among many.
The Dax broke the 15,000 and 16,000 marks in March and August 2021, when stock markets around the world left their Corona lows from the previous year behind. At the beginning of the pandemic, the index fell to 8,255.65 points. Since then, the price has recovered significantly – although the ongoing Russian war in Ukraine and the Middle East conflict continue to put pressure on the economy, among other things.
Source: Stern
