German stocks rise after ending at a record high

By Steve Goldstein

German stocks rose in early trade on Wednesday, extending gains after finishing at a record amid signs that interest rates will fall in both Europe and the U.S.

The German DAX DX:DAX rose 0.6% to 16,635 as the U.K. FTSE 100 UK:UKX and French CAC 40 FR:PX1also rose. The main benchmark extended gains on hopes for a stronger open to Wall Street trade (ES00) on Wednesday.

The DAX is up 19% this year.

European Central Bank board member Isabel Schnabel on Tuesday called further rate hikes "very unlikely" and recent inflation data "a very pleasant surprise." She also failed to push back on market expectations for rate cuts next year, all of which dragged bond yields lower and suggested an 86% chance of a rate cut in March.

Economists at Nomura say the European Central Bank won't change its rate outlook at its next meeting, but will cut its economic growth forecasts, which will lead to even more rate cuts being priced in.

"We also think markets are unlikely to heed any warning from [ECB President Christine] Lagarde on market pricing being overly aggressive on near-term rate cuts," they said in a note to clients.

Deutsche Bank economists say they now expect 150 basis points of ECB cuts next year, from 100 basis points last week, and 75 basis points two weeks ago. "We are leaning into an increasingly dovish ECB call," they say.

One German firm missing out on the rally was Merck KGaA (XE:MRK), whose shares fell 13% after a late-stage trial on its multiple sclerosis drug didn't meet its target. Merck is not affiliated with the U.S. drugmaker of the same name.

Outside of Germany, Inditex shares (ES:ITX) declined 2% and H&M Hennes & Mauritz (SE:HM.B) also fell 2% as Deutsche Bank downgraded both retailers to sell from hold, on factors including their belief that the post-pandemic rebound in clothing sales will fade next year.

British American Tobacco stock (UK:BATS) fell 8% after a GBP25 billion write-down and profit warning.

Tui shares (UK:TUI) rose 12% as the travel group said its Sept. 30-ending fiscal year results were in line with expectations, and that it expects at least a 25% rise in underlying earnings before interest and tax this year on at least a 10% rise in revenue.

-Steve Goldstein

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12-06-23 0915ET

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