Despite all of the negative news in the stock market over the past week, the German Dax is hitting a record high for the second time in the last 23 weeks. Meanwhile, the UK’s FTSE is also recovering. The two indexes are in the middle of a rally after hitting a five-month low on August 22.
Germany’s DAX
Despite a slight recovery on Monday, the euro is still down 15% so far this year. It has now fallen more than two-fifths of its value versus the US dollar.
Germany’s DAX is now down 12.3% this year, while the UK’s FTSE 100 is down 9.4%. The euro is down 25 percent against the dollar since May.
The euro zone stimulus programme has caused the euro to weaken. But investors are hoping it will boost the European economy. It could lift earnings for exporters.
Investors also look ahead to the monetary policy of the euro zone. They could decide to hike interest rates to control inflation. However, they are worried about the impact on corporate earnings.
The UK government plans to borrow to fund the tax cuts, which have been criticized as “trickle-down economics” by some Conservative Party members. It also plans to cut the top rate of income tax. Its tax-cutting measures include scrapping plans to increase the corporation tax.
Five business groups have written to the British government requesting urgent action to address the rising cost of living. They said the government’s failure to act could lead to lower investment and poverty.
Investors are looking ahead to inflation data that is due out this week. They are also waiting for speeches by European Central Bank officials.
France’s CAC
Despite the loss of a major bourse, UK stocks have rebounded to end the day near their highest level of the year. The FTSE 100 and the domestically focused FTSE 250 both rose in the wake of the announcement of a government plan to extend the tax cuts.
The UK government is planning to fund the extension of the tax cuts by ramping up borrowing. However, the latest inflation data from the US revealed that inflation increased to 8.3% in August, its highest level since May 2006. This news sent global markets into turmoil.
Meanwhile, the CAC 40 Index closed at its highest level in nine years. Energy stocks drove the gain. This included TotalEnergies, which dropped nearly two percent on lower oil prices. The price has since recovered to $1.067 by time of writing.
Meanwhile, Germany’s DAX Index slipped, falling to a one-year low. A break below 11,900 would put the DAX in correction territory. It’s also possible that it can find support along a rising trendline from December 2018 lows.
Meanwhile, Britain’s CAC 40 Index has closed at its highest level of the year. It’s also the first time that the index has closed at a negative level in the last eight days. This may lead to a pullback towards 6,600.
UK’s FTSE
Despite a strong start to the week, the FTSE 100 is set to fall this week. The index started the week at its highest point since the pandemic, but is expected to fall to two-month lows on Thursday.
The FTSE has lost 4% in the past week, despite recovering some ground. The pan-European Stoxx 600 index fell 1.5%. However, US markets rallied. The Dow increased 547 points, while the Nasdaq and S&P 500 both rose by 1.7%.
The FTSE 100 index has also dropped more than 80 points since hitting an 18-month high in October. This week’s losses include the worst five days since November last year.
Inflation in the U.K. hit a multi-decade high of 5.4% in December. The Bank of England (BoE) said that inflation could hit 10% in the year ahead. Despite this, investors appear relieved that central banks are taking action.
The Bank of England is expected to raise interest rates at its next meeting. The rate is expected to increase to 0.75% from the previous low of 0.55%. It is expected to continue raising rates, as inflation continues to surge. The bank is expected to increase rates by 1% in May and 2% in the following year.
The UK economy grew by 0.8% in January, despite the pandemic. This was more than the average of 0.6 percent expected. However, inflation increased to a 30-year high of 5.5% in January.
