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DAX bounces to new high ahead of Fed interest rate call

June 14, 2023

German stocks have rallied to a new record amid expectations that US interest rate rises are about to plateau.

Stock exchange in Frankfurt, Germany
The DAX's new record high surpasses an earlier record in MayImage: REUTERS

Germany's blue-chip DAX index jumped to a new high of 16,332.67 points on Wednesday amid speculation that the US Federal Reserve is set to pause its cycle of interest rate hikes.

Markets in London and Paris have also been buoyant after data showed US inflation was cooling — increasing expectations that the Fed will not further lift the cost of borrowing.

What does the rise mean?

While the latest high only comes a month after a previous record figure for the DAX, it indicates returning market confidence as US policymakers bring inflation under control.

The DAX's previous spike, on May 19, was driven by optimism about the US Congress reaching a deal to stave off a disastrous default on the nation's debt.

Since a price slide to almost 12,000 in September, the DAX — which is now made up of Germany's top 40 leading blue-chip firms — has been faring better.

Despite a highly turbulent few years economically with COVID and then the war in Ukraine, the DAX has gained more than 50% in value since late in 2018, though some of this can be ascribed to its expansion from 30 companies to 40 in 2021.

The recent recovery of the German index, among others, has been bolstered in part by Beijing's decision in late 2022 to finally drop draconian COVID-19 restrictions in China.

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The Federal Reserve's predicted skip in rate rises comes after 10 consecutive hikes. 

A pause looked more likely after a sharp drop in the US consumer price index was slightly more than had been forecast. A string of recent readings also suggests that 15 months of central bank tightening is beginning to kick in.

rc/fb (AFP, dpa)

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