DAX Opens Lower After Yesterday’s All-Time High, Fed Decision in Focus
Yesterday’s vote on a massive spending bill propelled the DAX to a new ATH, today’s market is taking back some profits
- Spending bill passes in Bundestag vote
- Fitch says Germany may lose AAA rating
- Fed decision takes center stage
The DAX opened down 0.30% this morning after yesterday’s rally to a new ATH. The index was fueled by bullish momentum for the massive infrastructure and military spending bill approved in the Bundestag.
DAX Surges Thanks to Extra Spending
The bill that was passed yesterday with the votes of the conservative, socialist, and green parties seeks to add €500 billion in infrastructure and €200 billion in defense spending.
The market sees the extra spending as a stimulus for a flailing economy, which has been contracting for the past 2 years.
The incoming government will also seek to lift strict borrowing rules once in power. The looser rules will likely mean more spending through the next years.
Economists have highlighted that extra spending will not be enough to sustain growth in the long run. Calling for a cut in regulations and red tape to allow businesses to be more competitive.
The DAX has outperformed its peers in Europe and the US, thanks to the large positive trade balance and a weak euro.
What happens with the economies in China and US will determine how long this rally continues.
DAX Live Chart
Fed Meeting Later Today
The DAX is likely to show little momentum today as the market awaits the FOMC meeting later on this evening.
The consensus is for the Fed to keep interest rates on hold, as per various statements from several Fed officials.
The press conference will be closely watched for any forward guidance from Powell. However, it seems that with sticky inflation and tariff concerns the Fed would be unlikely to cut rates soon.
In a break from how the ECB has usually operated, following the Fed, the euro area central bank is likely to keep cutting rates. However, Germany is heavily reliant on a strong US economy for its exports.
Fitch stated that Germany risks losing its AAA credit rating if adjustments are not made to create sustainable growth. The injection in spending will create some growth short-term but would not be enough to generate long-lasting expansion.
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