U.S. equities lead the charge for Dax
In the financial world, European indices have been displaying a mix of strength and caution, as investors tread carefully ahead of key US monetary policy signals.
The German benchmark index, DAX, has shown resilience, rising by 0.6% to 24,170 points. Despite a brief slip of 0.4 to 0.6% amidst investor caution, the index is showing signs of recovery after three weaker trading days. The record high of 24,639 points, reached around a month ago, remains within reach.
The MDax, on the other hand, has performed exceptionally well this year, with a year-to-date gain of about 27.5%. This strong performance is largely due to optimistic earnings growth forecasts, particularly in finance, IT, and industrial sectors, which are expected to see around 4% growth for 2025 and double-digit growth in 2026-27.
The Euro Stoxx 50, a broader European market index, rose by approximately 5.4% in July, reflecting a broad European market recovery aligned with easing trade tensions. However, as of August 20, the index weakened slightly, losing 0.2%, closing at 5,473 points. This dip can be attributed to market caution ahead of US Fed Chair Powell’s Jackson Hole speech.
The focus on capital markets is on the meeting between US President Donald Trump and Russian President Vladimir Putin on Friday. Yet, the near-term performance of these European indices is marked by subdued performance and volatility due to uncertainty about US interest rate policy following inflation data.
There is a persistent tension between high US inflation arguing against rate cuts and market hopes for a 25 basis point cut in September. This uncertainty is causing short-term volatility and subdued investor confidence in these European indices despite strong fundamentals.
Portfolio manager Thomas Altmann of QC Partners stated that optimism is boundless at the moment. However, investors remain cautious until clearer signals emerge from the Fed’s upcoming communication.
The US July inflation data was positively received, and the probability of a lower interest rate in September in the US is now priced at 96%. This hope for an imminent interest rate cut has received new impetus, and Asian stock markets rose this morning, with the Japanese Nikkei index hitting a new record high.
Despite the near-term volatility, the longer-term outlooks for DAX, MDAX, and Euro Stoxx 50 remain constructive with solid earnings growth and recovering valuations. Most quarterly reports from companies in the article's context were well received, and the recovery is due to record highs on Wall Street and the Nasdaq on Tuesday.
Europeans and Ukrainian President Volodymyr Zelensky, however, fear that the future of Ukraine may be decided over their heads, adding another layer of uncertainty to the global financial landscape.
[1] Financial Times, "DAX hits record high as German economy recovers", 1 July 2025, link [2] Reuters, "Euro Stoxx 50 hits 5-year high on optimism over global growth", 2 July 2025, link [4] Bloomberg, "DAX, Euro Stoxx 50 Slip Amidst Caution Ahead of Powell’s Jackson Hole Speech", 20 August 2025, link [5] CNBC, "Market participants await Powell’s remarks to clarify Fed’s policy outlook", 20 August 2025, link
In the broader scope of general-news, the lingering tension between US inflation and market expectations of lower interest rates has fueled short-term volatility in European business sectors, causing a dip in the Euro Stoxx 50 index. Meanwhile, the focus on politics, specifically the US-Russia summit, has not deterred the finance industry from maintaining a constructive long-term outlook for indices like the DAX, MDAX, and Euro Stoxx 50, driven by solid earnings growth and recovering valuations.
