The German DAX index surged again on Wednesday, closing at 23,726 points – a substantial 1.1% increase from the previous day’s close. This rally was particularly driven by financial stocks, with Commerzbank shares leading the charge, jumping nearly six percent amid speculation regarding potential acquisition by UniCredit and the bank’s own share buyback program. Deutsche Bank and Allianz also outperformed, although industrial giants like Infineon and Siemens Energy demonstrated significant gains as well.
The market’s exuberance, however, flies in the face of repeated warnings from the European Central Bank (ECB) regarding the potential for asset bubbles. Christine Romar of CMC Markets observed a palpable shift in investor sentiment, seemingly dismissing previous anxieties. After a dramatic Thursday sell-off in the U.S. tech sector, reminiscent of historical downturns, the Nasdaq has largely rebounded, demonstrating a renewed appetite for risk.
While Nvidia’s stock remains below its peak following recent earnings reports, investors appear to be pivoting toward alternative growth areas on Wall Street, including established names like Meta and Alphabet. This suggests a continued belief in the long-term growth potential of artificial intelligence, despite recent volatility. Even Nvidia itself experienced renewed demand, temporarily restoring the market’s familiar bullish trend.
Adding further complexity, recent weak U.S. economic data has simultaneously fueled hopes for interest rate cuts, while speculation swirls around a potential successor to Federal Reserve Chair Jerome Powell. The increasing likelihood of Kevin Hassett, a known ally of Donald Trump and proponent of a looser monetary policy, assuming the position raises doubts about the previously anticipated 3% U.S. benchmark interest rate by the end of 2026. Such a scenario would inject further liquidity into the market and bolster valuations, particularly among U.S. technology stocks. This prospect is directly at odds with the ECB’s latest Financial Stability Report, which explicitly warns about the vulnerability of the equity market due to “persistently high valuations” and the danger of sharper corrections.
Romar highlights that a potential peace agreement in Ukraine could unlock further upside, leaving the possibility of a year-end rally in Frankfurt alive. From a technical perspective, the DAX reclaiming the 200-day moving average suggests a slightly more optimistic outlook.
The euro strengthened to $1.1599 in Wednesday afternoon trading, representing a weaker US Dollar at $0.8621. The ongoing divergence between the ECB’s cautious stance and the market’s increasingly bullish trajectory creates a precarious situation, raising questions about the sustainability of the current rally and increasing the potential for future market corrections.
