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European indices rally as recession fears fade

But are the champagne corks being popped too early?


Pete Carvill

The continent’s main indices are currently buoyant in anticipation of good news coming from the US.

Germany’s DAX index has witnessed a rally in recent weeks and is currently at levels not seen since February 2022.

At the time of writing, the index—Germany’s leading indicator of economic strength—is at 15,025.35, having leapt from 13,893.07 on 16 December. In September last year, it fell to 11,975.55, rising before falling again in mid-December.

But industry analysis states that Germany’s economy may be in a more-precarious state than many think, citing the nation’s reliance on exports to the US and China in an era of protectionism.

Back to the markets—a similar rise to that of Germany’s has been seen in France, where the CAC 40 index has also rallied in recent weeks, rising from 6,450.43 on 20 December to 6,970.61 this week. A similar increase, from 8,112.5 on 16 December to 8,805.60 this week, has been seen on Spain’s IBEX 35.

In Germany, the major economic paper Handelsblatt wrote that the market was being driven by the potential for positive inflation data, which should be published later today in the US.

However, the paper still sounded a note of caution, writing, “However, strategists distrust the rapid stock market upswing. Sven Streibel, chief equity strategist at DZ Bank, says, for example: ‘The DAX is popping the corks too much.’”

It added: “With the corona easing in China and the hope for less strong interest rate hikes by the US Federal Reserve, there are positive signs for the strengthening of the two main sales markets of the DAX companies. Meanwhile, however, markets reflected too much optimism.”

On top of all this, analysts at Goldman Sachs predicted this week that the Euro zone economy was more resilient in recent weeks than had previously been thought. Bloomberg reported that those analysts said that the region’s economy was set to grow by 0.6% this year, with the European Central Bank predicted to raise its deposit rate to 3.25% in May.

Bloomberg wrote: “While growth will still be weak during the winter due to the energy crisis, the first quarter of 2023 will likely see expansion of 0.1%, according to economists led by Jari Stehn. They also see inflation easing faster than thought — to about 3.25% by end-2023.”