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• The German DAX index has surged to a record high.
• There are signs that the ECB and Federal Reserve will start cutting rates.
• Companies like Adidas, SAP, Rheinmetall, and Heidelbergcement have been the top gainers.

The DAX 40 index surged to its all-time high on Tuesday, continuing the remarkable rally that started on October 23rd. The index, which tracks the 40 biggest companies in Germany, soared to a high of €16,533. It moved slightly above the previous record high of €16,520. 

Federal Reserve and ECB rate cuts

The main driver for the DAX index is the actions by the Federal Reserve and the European Central Bank (ECB). Most economists believe that these banks will start cutting rates in the first half of next year.

Fed’s futures show that over 99% of all economists expect that the Fed will leave rates unchanged in its meeting next week. More than 51% of them then believe that the bank will slash interest rates in March of 2024.

The ECB is also expected to start cutting rates since European inflation has been dropping in the past few months. The most recent data showed that the headline Consumer Price Index (CPI) dropped to 2.4% in November.

There are signs that the bloc’s inflation will move to the 2% target in the coming months since the price of crude oil and LNG has dropped. Brent was trading at $77.30 on Wednesday while the West Texas Intermediate (WTI) moved to $72.31. 

In most cases, the DAX index tends to do well when both the Federal Reserve and the ECB are in a dovish mood. For one, lower interest rates will lead to improved liquidity in Europe, which has crashed hard in the past few months.

Top DAX index movers

DAX chart by TradingView

Most companies in the German DAX have jumped this year. Adidas (ADDYY) stock price has surged by over 53% as it moved away from Kanye West and other celebrities like Beyonce. The company is seeing strong organic growth as sporting events gain steam. It has also outperformed Nike (NKE), which is only up by 4% in the past 12 months.

The second-best performer in the German DAX is SAP (SAP), the giant software company. Its stock has jumped by over 52%, helped by the ongoing demand in cloud computing. The most recent results showed that its cloud revenue rose by 23% in constant currency as backlog jumped to over €12.3 billion.

The other top performer in the German DAX is Rheinmetall (RNMBF), whose shares have jumped by over 50%. It has benefited from increased order flows as global geopolitical risks rise. Last week, it won a €140 million deal for the war in Ukraine.

Other top companies in the index are Heidelbergcement (HDELY), Covestro, E.ON, Munich Re, and Commerzbank. On the other hand, the DAX index has had some bad performers this year. Bayer shares have plunged by over 34% as the company has moved from one challenge to the other. Most recently, the company’s blood thinner drug failed in its third phase. Other big laggards in the index are Siemens Energy (SMEGF), Zalando, Sartorius (SARTF), and Qiagen (QGEN).

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