The German DAX index just hit a new milestone, reaching 22,000, a new all-time high for the index amid trade tariffs. The DAX was supported by rate cuts from the ECB and strong earnings.
But the bullish momentum could stall as tariffs impact global uncertainty and impact the German economy, which is one of the world’s major exporters. With German elections looming, the DAX will likely see major volatility.
ECB Rate Cuts
The ECB’s monetary policy stance significantly influences German companies listed on the DAX. In their previous meeting, the ECB cut rates by 25 basis points. These rate cuts can stimulate economic activity, benefiting the DAX by increasing demand and investment.
The DAX’s all-time high was driven by optimism surrounding potential ECB rate cuts and positive developments in international trade discussions. Investors anticipated that the ECB’s accommodative monetary policy would continue to support economic growth, further enhancing the German index’s performance.
German Stocks Q4 Earnings
In Q4 2024, major German companies showed mixed earnings results.
Deutsche Bank reported a sharp decline in Q4 2024 profit, falling to €106 million, far below analyst expectations due to hefty legal costs, particularly from its Postbank litigation.
Despite this, revenue slightly exceeded forecasts at €7.224 billion. Meanwhile, investment banking revenues surged 30% year-on-year, but overall profitability was hit by expenses. Deutsche Bank also announced a €750 million share buyback. ⁽¹⁾
SAP reported strong Q4 2024 earnings, with EPS rising 24% year-over-year to €1.40, driven by significant cloud adoption. The company’s cloud business expanded globally, with major brands adopting its solutions. SAP’s operating profit increased 24% to €2.44 billion, and it repurchased shares worth €3 billion under its ongoing buyback program. ⁽²⁾
German Trade and Industrial Production
Germany’s industrial production declined by 2.4% in December, reversing the 1.5% gain seen in November. However, the drop may not necessarily indicate a long-term slowdown, as factory orders surged 6.9% in the same month, suggesting resilience in demand.
Meanwhile, Germany’s trade surplus widened to €20.7 billion, with exports growing 2.9% after a 2.1% rise in November, highlighting the continued strength of the country’s export sector. ⁽³⁾
Trade data showed shifting dynamics, with exports to the U.S. falling by 3.5% while exports to China increased by 1.4%. At the same time, imports from the US rose 3%, whereas imports from China declined by 1%.
Notably, exports to EU countries jumped 5.9%, signaling strong European trade. These trends could play a role in upcoming US-EU trade negotiations, particularly as tariff concerns remain a key issue. ⁽⁴⁾
Tariff Risks
The German economy faces significant tariff risks, primarily due to potential trade actions by the US. Economists predict that the imposition of tariffs on goods from Mexico, Canada, and China could significantly impact Germany’s GDP, potentially leading to a decline.
These tariffs could pressure Europe’s 2025 growth, with key sectors like cars and pharmaceuticals facing considerable risks.
How Will the Fed Affect the DAX?
The DAX is heavily correlated with US stocks. A hawkish policy stance from the Fed, driven by concerns over tariff-induced inflation, could pressure stocks. Tariffs may push import prices higher, fueling inflationary pressures. A more hawkish Fed could lead to higher borrowing costs, potentially affecting corporate earnings.
German Elections
Germany’s snap federal elections, scheduled for February 23, 2025, are creating uncertainty in the market. Germany’s snap election follows the collapse of Chancellor Scholz’s coalition and a subsequent vote of no confidence. ⁽⁵⁾
Economic issues like high energy costs and weak global trade remain key concerns for Germany. The upcoming election could influence the DAX as major parties propose different economic approaches.
The CDU/CSU (Christian Democratic Union/Christian Social Union), Germany’s center-right alliance, supports supply-side reforms such as tax cuts and deregulation to stimulate business growth.
Meanwhile, the SPD (Social Democratic Party), a center-left party, prioritizes public investment. Additionally, proposed climate policies from both sides could impact industrial and energy stocks.
Traders and investors should closely monitor policy announcements and election outcomes, as shifts in these areas could drive volatility in the DAX. ⁽⁶⁾
