DAX is breaking new records. Rally as in October 2022.

In December 2023, German DAX stock index has reached historical records, exceeding its previous highs, and the pace of growth can only be comparable to what we saw in October 2022.

What could be behind such a strong increase in DAX?

One of the key factors that contributed to this increase was expectations of interest rate cuts by the European Central Bank (ECB) in 2024. The increase in these expectations could have helped improve DAX quotations. Isabel Schnabel of the ECB suggested that further increases in interest rates are "rather unlikely", while not ruling out the possibility of interest rate cuts by mid-2024​​​​.

Interest rate cuts often have a positive impact on share valuations in financial markets because they reduce the cost of borrowing for businesses, enabling them to increase investment and potentially increase profits. Such activities stimulate the economy by increasing consumer and investment spending, which has a positive impact on the financial results of companies. Moreover, such actions of the central bank are often interpreted by investors as a signal of active support for the economy, which may increase optimism on the stock markets.

However, will the ECB share the market's optimism regarding a quick rate cut? We will find out on Thursday.

DAX is a total return index with dividends

The DAX index consists of 40 leading German companies listed on the Frankfurt Stock Exchange. It is a dividend-inclusive index, which means that its value reflects not only the share prices of its constituents, but also the dividends paid by these companies​​​​.

Before the ECB, there is inflation and the Fed

Today, investors' eyes should be focused on inflation data from the US, which may drop to 3% due to, for example, the systematic autumn drop in gasoline prices, which may also affect the inflation reading for December. Inflation of 3,0% could convince the market that such high real interest rates are no longer necessary and Fed he could lower them next year. That is why the FOMC's macroeconomic projections will be so important, from which we will learn that the Fed forecasts inflation, unemployment and interest rates. On Wednesday evening it will be confronted with market expectations. However, at the moment the US indices are on the verge of breaking the all-time record.