DAX Sets All-Time Highs Two Days in a Row – CAC Besieged by Political Turmoil

China stimulus package continues to rally German stock market as investors perceive a boost for exports.

The DAX has outperformed global stock markets over the past two days as the stimulus package from China gives extra fuel to the current bullish trend. The PBoC’s policies are expected to expander consumer demand and prop up the flailing real estate market.

The market expects German stocks to benefit from this higher demand for all sorts of goods from cars, brand apparel to industrial technology. The highest gainers today from the DAX include:

The stimulus package adds to the market perception that the ECB will lower rates again before the year end. Analysts at HSBC and Schroeders see an interest rate cut at the next meeting in October, while Deutsche bank doesn’t rule out a 0.50% cut.

The interest rate markets are pricing in a 65% probability of a rate cut by 25 basis points for October. The reasoning behind the move is due to weakening economic data and the possibility of inflation under 2%.

French Politics Undermine Stocks

The CAC has struggled with the political uncertainty created after French President Macron called a snap election in for July. Since the general election, which produced a hung assembly, French stocks have underperformed its peers.

Since the election the DAX has risen around 3%, while the CAC has dropped approximately 4%. Looking at the Mid-Cap France focused index (CACMD) the decline is even worse, with a fall of nearly 8%.

The bullish sentiment on ECB policy is at struggles with the fact that the government seems unlikely to be able to put new laws forward. Macron appointed a new prime minister from the conservative party. However, he lacks an outright majority unless he can fluster votes from both the left and right wings.