Germany’s benchmark stock index opened at an all-time high on Wednesday as investors’ growing confidence that interest rates will soon be cut outweighs fears that the country could potentially enter a recession.
The day before, the DAX closed at a record high of 16,533 points – only to surpass this high on Wednesday at the start of trading. From At 6:04 a.m. ET, the DAX was up 0.2% on the day at 16,570 points.
The index, which includes the 40 most valuable companies in Europe’s largest economy, has been rising more or less continuously since the end of October. At the end of the month, official estimates showed that inflation had slowed sharply in the 20 countries that use the euro, reaching its lowest level in more than two years.
Price increases – which forced the European Central Bank to embark on an unprecedented cycle of interest rate hikes – continued to ease in November, reaching 2.4%.
Investors’ expectations that borrowing costs would not rise again received a boost on Tuesday when ECB board member Isabel Schnabel effectively ruled out further hikes, citing a “remarkable” decline in inflation. Schnabel told Reuters that the central bank was on track to reduce inflation to its 2% target, making “another rate hike unlikely.”
Lindsay James, investment strategist at Quilter Investors, said the DAX had been buoyed by “good news on inflation” and pointed out that investors now expect the ECB to start cutting interest rates as early as March.
Recent business surveys that suggested Europe’s economy may have bottomed out also lifted the index, she said in a note.
A closely watched survey of purchasing managers examining the euro zone’s manufacturing and services sectors showed on Tuesday that output contracted more slowly in November than the previous month.
Still, the stock market gains are at odds with the fragile health of the German economy, which is performing worse than other major regional economies such as France, Italy and Spain. German gross domestic product shrank by 0.1% in the third quarter compared to the previous three-month period.
In the latest sign of Germany’s troubles, official data showed on Wednesday that industrial orders at Europe’s manufacturing powerhouse fell 3.7% in October from the previous month, wiping out economists’ forecasts of a slight increase.
German companies have also “significantly reduced” their investment plans for this year and next year, it said in a statement Survey of 5,000 companies by the Ifo Institute, published on Monday.
“The investment climate has noticeably deteriorated. “This is a consequence of higher financing costs, weak demand and economic policy uncertainty,” writes Lara Zarges, an economic expert at the institute, in a press release.