So Long, 20k: The DAX's Struggles Post 20,000 Milestone
Your Buddy, Tom Frankfurt
Stock Market's Push Leads German DAX to Slump
The DAX is knee-deep in troubles again, struggling to maintain the prestigious 20,000 points mark it conquered for the first time back in early December. The culprit? Forecasts from the Fed that put an abrupt end to the year-end rally. On Thursday, the DAX parted ways with 1.4% and settled at 19,970 points. The DAX's record high of 20,523 points set last Friday is now fading in the rearview mirror. The MDax and Euro Stoxx 50 also recorded losses during the same day.
The Fed, true to market predictions, lowered interest rates a third time on Wednesday, but hinted at a more prudent approach towards further easing in 2025. Fear stalks the markets, as the import tariffs proposed by the incoming US President Donald Trump might spark inflation once more. Chief Economist, Thomas Gitzel of VP Bank predicted a freeze in rate cuts as early as the January meeting, commenting that more than two cuts in the coming year is unlikely to be seen as a minimum, but a maximum.
Semiconductor Sector and Chip Stocks
Wall Street and the tech exchange Nasdaq have felt the heat already, and so did German indices on Thursday. Chip stocks bore the brunt of pressure, with disheartening results from Micron Technology piling on to existing woes. The chipmaker's stock plunged almost 20% in pre-market trading in New York. At the Dax's tail end, Infineon's shares took a hit, losing over 4%. In the MDax, Aixtron and Siltronic suffered even greater losses, over 6%. Suss Microtec (formerly Suess) also saw lower trading levels in the SDax.
The possibility of fewer interest rate cuts in the USA in 2025 also squeezed the real estate sector. At times, bond market yields rose significantly, putting pressure on house and apartment buyers. Vonovia's shares were among the losers in the Dax.
Dollars Dominance and Copper's Dilemma
The dollar, on the other hand, reaped benefits from the proposed interest rate outlook, strengthening in the process. The value of a dollar sometimes dropped as low as 1.0345 against a Euro in the US market, bringing it close to the 1.0335 mark it reached on November 22, when a Euro cost less. Many currency traders anticipate that the dollar will soon reach parity with the Euro due to incoming protectionist US economic policies. The strengthening dollar put pressure on copper prices, which fell by as much as 1.4% to 8,900 dollars per tonne.
On the Horizon: US Fed's Interest Rate Predictions for 2025
The US Federal Reserve's expected interest rate cuts in 2025 are likely to depend on economic factors like inflation, unemployment, and growth. Political and economic uncertainties, such as tariff policies, could also impact the Fed's decisions.
According to the CME Group's FedWatch Tool, there's a substantial probability (approx. 75%) of rate cuts totaling at least 0.75 points by December 2025, possibly in increments of a quarter percentage point each quarter.
A Closer Look: Impact on Financial Markets
DAX (German Stock Exchange Index)
Lower US interest rates could potentially spur capital inflows into international markets, boosting foreign indices like the DAX as investors seek attractive returns. However, changes in currency values can also impact exports and imports, complicating matters for the DAX's performance.
Real Estate Sector
Lower US interest rates could lead to reductions in mortgage rates, making housing more attractive and potentially stimulating the real estate market. But, recent estimates suggest modest declines, with rates expected to average around 6.5% by the end of 2026.
Chip Stocks (Semiconductor Sector)
Interest rate cuts aimed at stimulating economic growth can help semiconductors by increasing consumer and business spending. But, the health of the tech sector depends on global demand and supply chains, making the impact of interest rate changes more complex.
- The DAX's struggle to maintain the 20,000 points mark was instigated by forecasts from the Federal Reserve, halted the year-end rally.
- On Thursday, the DAX lost 1.4% and settled at 19,970 points, with the record high of 20,523 points now a distant memory.
- The MDax and Euro Stoxx 50 also recorded losses during the same day.
- The Fed hinted at a more cautious approach towards further easing in 2025, creating a dampener in the markets.
- Fear of import tariffs proposed by the incoming US President Donald Trump contributed to this market turbulence, potentially sparking inflation.
- Chief Economist, Thomas Gitzel of VP Bank predicts a freeze in rate cuts as early as the January meeting.
- Wall Street and the tech exchange Nasdaq have felt the heat, as well as German indices on Thursday, with chip stocks bearing the brunt of the pressure.
- Micron Technology's disheartening results in pre-market trading in New York contributed to the chip stocks' woes.
- Infineon's shares took a hit, losing over 4% in the Dax, while Aixtron and Siltronic suffered even greater losses, over 6% in the MDax.
- vonovia's shares were among the losers in the Dax due to pressure from the strengthening dollar.
- The US Federal Reserve's expected interest rate cuts in 2025 could potentially boost foreign indices like the DAX, but changes in currency values can also impact exports and imports, complicating matters for the DAX's performance.
