In reality, global financial markets are being rocked by a tectonic shift. The German DAX index is up against record highs, and major US indices have snapped back into positive territory this year. Investor sentiment is recovering as inflation pressures in the United States show signs of abating. Importantly, good news on tariffs from China helps fuel that optimism, too.
In Europe, even as the DAX index is up more than 2% on substantial recovery, the FTSE 100 is currently trading a little bit lower. UK wage growth data missed expectations by a hair. This has produced quite a confusing picture for investors throughout the continent. The DJIA has tracked the DAX very closely. This is indicative of how closely the two indices are correlated to one another and respond to broader global market movements.
German DAX Index Hits New Heights
The politically domestic German DAX index has been on an upward trajectory this week, trading north of its record high. The investors are optimistic. The index is making a strong comeback, especially due to encouraging news of economic fundamentals on home and foreign shores.
Largely, analysts attribute this growth to the confluence of four factors. They point to a string of stronger-than-expected earnings reports from influential bellwethers and a near-unanimous positive outlook among European policymakers. The DAX’s outstanding performance is a positive sign and a useful barometer for global investor sentiment, indicating a new willingness to move into riskier assets.
“Both the Nasdaq 100 and the S&P 500 are trading back in positive territory for the year as US inflation unexpectedly slows and China lowers tariffs on US goods.” – Axel Rudolph, Senior Technical Analyst at online trading platform IG.
Mixed Signals from the UK
Unlike the DAX, the FTSE 100 is cutting into those gains in choppy trade and is negative on the day. There are two main factors behind this sharp decline, both related to the recent UK wage growth data having surprised to the downside. These economic indicators are worrying for consumer spending power and overall economic momentum across the UK.
Even so, analysts are still relatively optimistic about the overall European market. Yet the UK economy is currently sending some conflicting signals. Investors are still trying to stack these regional dynamics up against global trends in European markets.
US Indices Make Gains Amid Easing Inflation
Back on the other side of the Atlantic, US markets are still rebounding. After a rocky start to the year, the Nasdaq 100 and S&P 500 are both back in the green for 2023. The main force behind this comeback is the slowing inflation rates found throughout the United States. These rates have consistently beaten analysts’ expectations.
Investors are buoyed by China’s Finance Ministry announcement that it would stop adding additional tariffs on US goods. This action turns a de facto 34% tariff on imports into a 10% one, creating a more positive climate and stimulating market confidence and demand.
Additionally, the DOW JONES has been trading almost tick for tick with the DAX, which is a sign of a very similar trajectory among global leading indices. It’s an ugly landscape for smaller caps at the moment. Representing the overall sentiment among investors to feel more risk averse, the Russell 2000 is currently trading roughly 5% lower than where it started the year.
In addition to equity markets, commodity prices are proving remarkably resilient. The oil price is on track for its fourth consecutive day of gains amid concerns over supply and ongoing geopolitical tensions between India and Pakistan. Following a brief major dip, oil prices are now at a four-year low. Currently, this rally is being primarily driven by strong demand recovery post-COVID and some supply tightening dynamics.
Price of gold has stabilized in recent days just above last Friday’s low. This is a sign that investors are reaching for safe-haven assets amidst the ongoing volatility in equity markets.