By: Editorial Team, StoneX Media
The German DAX index has extended its winning run to four consecutive sessions and moved back within reach of record territory. Eurozone data resilience is the reason European equities are holding that bid, because economic releases have come in firmer than markets positioned for and have removed a layer of downside risk from the region. Cheaper energy has done the rest of the work, easing input costs and softening inflation expectations at the same time. Longer dated U.S. bonds, by contrast, remain the stress point in the global picture, and European equities have so far declined to care.
Fawad Razaqzada is a Market Analyst for StoneX Media, based in London, with more than 12 years of trading and analysis experience across foreign exchange, equity indices, commodities, and cryptocurrencies. He works across macroeconomics, technical analysis, and price action, which is the same set of threads that connects eurozone data, energy prices, and the European equity move.
"European markets have been steadily grinding higher, with the German DAX index closing in on record highs", and the driver is a pair of supports that have arrived together. Eurozone data has been surprisingly resilient, which matters more than a single strong release because it removes the recession discount that European equities had been carrying. Lower energy prices reinforce the same effect, since cheaper input costs feed directly into the earnings base of an industrial index such as the German DAX. Consequently, investors are paying up for European equities on fundamentals rather than on momentum alone, even as the euro has come under mild pressure. The practical read for cross-asset investors is that the European equity bid has a data foundation underneath it, which is a different quality of move from a liquidity driven rally.
The decline in oil prices earlier in the run has done double duty, supporting risk appetite in European equities while pushing longer dated U.S. bond yields lower as inflation concerns eased. That drop was triggered by constructive talks between Iran and Oman, with Pakistan also working to bring the United States and Iran back toward diplomacy. "It's far too early to say whether these discussions will produce anything concrete, but for now, they have helped to remove some of the geopolitical risk premium from oil markets", Razaqzada says, which is the caveat that matters most here. Notably, the same easing has not resolved the underlying stress, and concerns over U.S. debt and the so called dollar debasement trade continue to push investors toward alternatives such as gold and Bitcoin while European equities benefit in parallel. According to Razaqzada, "the trend remains firmly constructive, but the next couple of sessions could prove decisive".
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--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Fawad Razaqzada, StoneX Media Market Analyst
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