German DAX 40 Hits Record High After ECB Rate Cut, S&P 500 Slumps 2%
The ECB delivered a 25 bps rate cut as expected, helping the German DAX index make a new record high, while the S&P 500 is getting beaten up once again, losing 100 points or around 2%.
DAX Surges on ECB Cut and Infrastructure Spending
European markets experienced high volatility this week, first dropping sharply on Tuesday as U.S. trade tariffs on Canada and Mexico took effect, only to rebound strongly after the tariffs were lifted again. This renewed optimism in riskier assets like stocks, helping Germany’s DAX40 index hit a new all-time high of 23,486 points, surpassing Monday’s previous record of 23,325 points.
The rally was further supported by news that Germany’s CDU-led coalition is moving forward with plans to form the next government. As part of coalition agreements, the government is expected to introduce a €500 billion infrastructure fund, which would be financed by revising strict borrowing rules. This announcement boosted market sentiment and helped fuel the DAX’s latest surge.
Dax 40 Chart Daily – The 20 SMA Keeping It Supported
Additionally, the European Central Bank’s (ECB) decision to cut interest rates has provided further stimulus for European stocks, making equities more attractive for investors. The combination of lower borrowing costs and higher government spending expectations has set a positive tone for the German and broader European markets.
S&P 500 Struggles as Market Sentiment Worsens
While European stocks are benefiting from supportive policies and fiscal spending, U.S. stock markets remain under pressure. The S&P 500 has now fallen around 7% from its mid-February highs, struggling to hold key support levels.
On Tuesday, the SPX index dropped to the 5,730s, but found support at the 100-day SMA (red), which led to a temporary rebound of 70 points (+1.2%). While some traders speculated about potential Congressional tax cuts, the main driver of yesterday’s bounce was growing expectations that North American tariffs would be scaled back.
However, despite the postponement of new tariffs, the downtrend in U.S. equities has resumed today. The S&P 500 is once again testing the 100-day SMA, and if this key support level fails to hold, it could open the door for further losses in the near term.
ECB Monetary Policy Decision – March 2025
The ECB’s rate cut was widely expected, but the weaker economic outlook and ongoing trade tensions remain key concerns. Lower GDP forecasts signal prolonged challenges, while inflation remains on track to hit its medium-term target.
The ECB’s meeting-by-meeting approach suggests no urgency for further cuts, keeping future policy decisions open-ended. While lower borrowing costs may support economic activity, uncertainty around trade and investment continues to weigh on sentiment, making the path to recovery slower than anticipated.
- ECB cuts key interest rates by 25 basis points, lowering the main refinancing rate to 2.65% (previously 2.90%).
- Deposit facility rate reduced to 2.50% (expected 2.50%, prior 2.75%), while the marginal lending facility drops to 2.90% from 3.15%.
- Policy is becoming less restrictive, making borrowing cheaper for businesses and households.
- Disinflation is progressing as expected, with headline inflation projected at 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027.
- Core inflation forecasts remain stable, averaging 2.2% in 2025, 2.0% in 2026, and 1.9% in 2027.
- Growth projections downgraded to 0.9% for 2025, 1.2% for 2026, and 1.3% for 2027, reflecting lower exports and weak investment, partly due to trade policy uncertainty.
- The ECB maintains a data-dependent approach, deciding policy on a meeting-by-meeting basis without pre-committing to a rate path.
ECB President Lagarde’s Q&A Session
- The ECB is shifting to a more gradual policy approach, as indicated by changes in the policy statement wording.
- Infrastructure spending could help boost growth, but the ECB needs more time to assess its impact.
- Consumer confidence remains fragile, and uncertainty is weighing on investment.
- Manufacturing remains weak, dragging down overall growth, while services remain resilient.
- Employment growth is subdued, with surveys suggesting that uncertainty will continue to limit investment.
- Inflation is expected to return to target in the medium term, but domestic inflation remains high, and recent wage deals suggest a gradual moderation in wage pressures.
- Trade tensions pose risks to growth, with downside risks outweighing potential upside factors.
Market Outlook
The contrast between European and U.S. markets is becoming more pronounced. While the DAX continues to reach record highs, fueled by ECB rate cuts and infrastructure investment, the S&P 500 faces increasing downside risks. If the U.S. index breaks below key technical levels, a deeper correction could follow, whereas European equities may continue to outperform in the short term as investors rotate into more attractive opportunities overseas.
German Index Dax 40 Live Chart
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