DAX Continues Surge as Parliament Set to Vote on Massive Spending Bill
The German parliament votes today on a spending bill that is expected to stimulate economic activity.
- Bill worth €500 billion goes to vote
- CDU, SPD and Greens likely to reach a majority
- Markets eye Trump – Putin phone call
The DAX rallied 1% this morning leading the way in a global stock market rebound. The CAC and FTSE are up 0.32% and 0.26% respectively.
Infrastructure Spending Fund
The German parliament will vote today on increasing strict constitutional spending limits. The 3-way alliance between CDU, SPD, and Greens wants to create a €500 billion infrastructure fund.
The bill would also ease the strict borrowing rules set out in the constitution. Investors see the fund as a way to create economic expansion in Europe and especially in Germany.
Parliament is still led by the interim government while the CDU attempts to seal a coalition for the next government.
The conservatives of the CDU and the socialists of the SPD want to pass this bill before the new parliament convenes on March 25. The fear is that the bill could be blocked by the far-left and far-right parties, which gained considerable ground in the last election.
Economists still argue that more than spending is needed. Stating that bureaucracy has to be reduced to allow businesses to be more competitive.
DAX Live Chart
Trump and Putin to Talk about Peace
The news that Trump and Putin are to have a telephone conversation to talk about peace in Ukraine has added to bullish sentiment for the DAX.
A peace deal in the conflict would allow for cheaper gas prices and a stronger euro. At the same time, the EU is committed to increasing military spending, which has also added bullish momentum to German stocks.
Despite the peace talks, Germany and more broadly the EU are going to increase military spending.
The EU rules that restrict government would therefore not apply to defense expenses. Stocks like Rheinmetall have surged 128% since the start of the year.
The DAX looks like it may benefit from both a peace deal in the conflict in Ukraine and a splurge of defense spending.
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