DAX Rallies as Bets on ECB Back-to-Back Rate cuts Mount

The markets sees the first consecutive cut in rates from the ECB in 13 years as the signal for further cuts.

Traders are raising their bets that the central bank will cut rates at an increasing speed compared to other peers. The DAX touched a new all-time high yesterday of 19,681 and is up 0.2% on the day.

The ECB chief made it very clear at the post meeting press conference that the central bank is data dependent. Referring to the need to keep interest rates as restrictive as long as needed to make sure inflation is under control.

That statement leaves us with a simple task, which is to look at the data. The Eurozone economy is not doing that great, with Germany lagging behind its peers instead of being the traction of Europe.

The weakening GDP outlook and signs that inflation is finally settling under the 2% target are the reasons the ECB has cut rates twice in a row. Looking forward, analysts see a deteriorating GDP growth and continuing declines in inflation.

GDP Growth Prospects

The Eurozone GDP Growth is expected to be at 1% for the full year 2024, while ECB analysts see GDP AT 1.2% for 2025. The ECB forecast for 2025 GDP growth states improved consumption demand and higher exports.

For the forecasts to materialize a lot will depend on demand from China and the USA. Today GDP Growth from China YoY Q3 declined slightly to 4.6% from 4.7% at the least reading. While house prices took a plunge, decreasing again by 5.7%.

The house price index is seen as an indicator of the health of the Chinese economy and recent problems in the real estate sector seem to persist despite the recently announced stimulus package.