The DAX is benefiting from renewed risk appetite, but the outlook remains bearish
The German stock market has benefited from investors’ renewed appetite for risk since mid-October to bounce back. The DAX rose 10% in two weeks in the wake of Wall Street on the potential for less-than-expected monetary tightening from the Fed.
Operators now expect Fed rates for 2023 to be between 4.75% and 5.00%, compared to more than 5.00% in early October. Investors appear to be making the same mistake as at the start of the summer, expecting a pivot from the Fed when inflation shows no signs of abating. Core inflation even continues to accelerate, reaching levels not seen in nearly 40 years, raising the chances of Jerome Powell’s hawkish tone after Wednesday’s monetary policy meeting.
Furthermore, fundamentals continue to deteriorate, whether macroeconomic or microeconomic. The corporate earnings season is rather disappointing with very weak earnings growth and several warnings for the coming quarters.
Against this backdrop of global monetary tightening and economic slowdown, the outlook for risky assets remains bleak and is likely to remain so as these headwinds are expected to intensify over the coming months.
DAX 40 (Turbo Germany 40) daily price chart – key levels