Interest rate discussions have been reignited following last week's central bank meetings. Analysts are putting the brakes on the temporary euphoria on the markets.
18 December 2023. FRANKFURT (Börse Frankfurt).
The surprisingly dovish statements from the US Federal Reserve at this point in time sent the DAX to an all-time high last week. After the meeting on Wednesday evening, Fed Chairman Powell announced that upcoming interest rate cuts had already been discussed. Fed funds futures are now pricing in an 80% probability of the first rate cut on March 20. A total of six interest rate cuts are expected by the end of 2024.
How much will key interest rates be cut?
For Sven Streibel, this will make equities more attractive again compared to other asset classes. "Exaggerated interest rate concerns are history, at least since the Fed meeting," explains the chief investment strategist at DZ Bank. Nevertheless, the euphoria at Commerzbank is limited. The prospect of six interest rate hikes or 150 basis points is exaggerated. "We expect only half that," says CEFA analyst Martin Roth.
Roth also expects three interest rate cuts for the eurozone, although this is not due to start until summer 2024. ECB President Christine Lagarde stated on Thursday that the central bank would initially continue to reduce its balance sheet. By contrast, the interest rate cuts that the market had already priced in in large numbers had "not been discussed at all".
This led to profit-taking on the German stock market. The DAX ended the major expiry day on the futures exchanges on Friday virtually unchanged at 16,751 points. Prior to this, the index had climbed above the 17,000 point mark for the first time in its long history. The new record high is now a good 17,003 points. Since the beginning of the year, the DAX has now gained more than 20 percent, outperforming the MDAX (+8.0 percent), TecDAX (+14.0 percent) and SDAX (+14.2 percent).
In early trading this morning, the DAX was down slightly at around 16,700 points. In the USA, the Dow Jones index closed at a new all-time high of 37,305 points on Friday. The S&P 500 and Nasdaq 100 are still a few points short of new records. In Asia, the Nikkei index closed down 0.7 percent.
Change of favorites in prospect
Uwe Streich from LBBW assumes that "after the brilliant rally, smaller rolls will now be baked again". Accordingly, the start to the new year is likely to be "less rousing than the final spurt in 2023". The expert also sees certain signs that "the focus could then increasingly return to mid-caps instead of blue chips". Historically, the MDAX has performed better in the first nine months of the year than the DAX, which usually performs better towards the end of the year.
The banks are positive about the fact that the equity boom in the USA has already gained in breadth. After the so-called Magnificent 7 stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla) were primarily responsible for the upswing until October, the other stocks have also recently made gains. The catch-up of the equally weighted S&P 500 index serves as evidence of this. At the end of October, its 2023 performance was still down by three percent and is now up by 13 percent.
According to Commerzbank, the constellation for the coming year is "quite favorable for equity indices". However, there are likely to be repeated phases of consolidation and stronger corrections in 2024. Our colleagues at Helaba take a similar view. Although the price potential of the DAX has not yet been exhausted at a fair value of 17,500 points, the "presumably somewhat overshot expectations of interest rate cuts" have created a certain potential for disappointment.
Changes in the DAX indices
The index adjustments decided two weeks ago came into effect today, Monday. The shares of Aroundtown, Krones and Siltronic, which were previously all listed in the SDAX, are now new to the MDAX. Befesa, Dürr and ProSiebenSat.1 Media have moved from the MDAX to the SDAX. The shares of KSB, Mutares and Schott Pharma are also new to the SDAX. Zeal Networks, New Work and secunet Security Networks had to leave this index. There were no changes to the DAX and TecDAX. The next regular review of the indices will take place on March 5, 2024.
Important economic and business events of the week
Monday, December 18
10.00 am. Germany: Ifo Business Climate December. The majority of economists expect the stabilization to continue at a low level. The business climate index is expected to rise just above the November value of 87.3 points.
16.00. USA: NAHB Housing Market Index. A slight increase from 34 to 36 to 38 points is also expected here.
Tuesday, December 19
Interest rate decision by the Bank of Japan. According to Deka, preparations are underway in Japan for the first interest rate hike since February 2007. However, the end of the negative interest rate level is unlikely to be initiated on Tuesday.
11.00 am. Eurozone: Consumer prices November.
14.30. USA: Housing starts and building permits November. A slight decline is expected in each case compared to the previous month
Wednesday, December 20
08.00 am. Germany: GfK Consumer Confidence Indicator January. Consumer confidence in Germany remains weak. According to analysts' estimates, the GfK index is expected to remain at a similarly low level as last month (-27.8 points).
15.00. Eurozone: Speech by ECB chief economist Lane.
Wednesday, December 20
08.00 am. Germany: GfK Consumer Confidence Indicator January. Consumer confidence in Germany remains weak. According to analysts' estimates, the GfK index is expected to remain at a similarly low level as last month (-27.8 points).
15.00. Eurozone: Speech by ECB chief economist Lane.
Thursday, December 21
14.30. USA: Philadelphia Fed Index December. Positive surprise potential for the economy? While the consensus forecasts an index reading of minus 3 points, analysts at Helaba (0 points) and Deka (plus 1.0 points) are much more confident.
Friday, December 22
08.00 am. Germany: Import and export prices November.
14.30. USA: Deflator of private consumption. Deka's economists expect the annual inflation rate ex food and energy to slow from 3.5% to 3.3%, confirming the general assessment of an improvement in the inflation environment.
by: Thomas Koch, 18 December 2023, © Deutsche Börse AG
Thomas Koch is a CEFA investment analyst, investment specialist for structured products and certified certificate advisor. Since the beginning of 2006, he has been covering events on the capital markets as a freelance journalist.
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