FRANKFURT (dpa-AFX) - The upcoming week is set to revolve around the US Federal Reserve's interest rate decision on Wednesday. Investors on the German stock market have recently priced in further declines in interest rates. However, whether the Fed will actually deliver them an early Christmas gift in the form of a rate cut remains uncertain, given the persistent inflation in the United States. The central bank's decision could either spark a year-end rally or leave 2025 starting with bitter disappointment.
"There is currently no consensus within the Fed on whether the focus should be on elevated inflation or the weak labor market," noted Gunter Deuber, Chief Economist at Raiffeisen Bank International. The Fed's dual mandate of price stability and full employment is currently leading to a conflict of objectives. Since inflation has so far been lower than expected as a result of President Trump's tariff policies, a rate cut is the more likely scenario, Deuber added. Market analyst Luis Ruiz from broker CMC Markets even referred to it as "the path of least resistance."
In the wake of the partial shutdown of the US government, the Fed still has access to few and, moreover, delayed economic data for its decision-making. Whether the lack of key data will prompt monetary easing or rather a wait-and-see approach remains unclear, cautioned Patrick Franke of Landesbank Helaba. The market is overestimating the likelihood of a pre-Christmas rate cut. However, in the medium term, it is ultimately irrelevant whether rates are cut in December or only in January.
For the coming year, investors are expecting three further rate moves, wrote Jürgen Molnar, capital markets strategist at broker RoboMarkets. They are therefore likely to pay particular attention to the Fed's monetary policy outlook. According to Jochen Stanzl, market analyst at Consorsbank, the latest US economic data is too mixed to justify an automatic series of further moves. As a result, it remains to be seen whether December will bring a "one-hit wonder" from the Fed and whether that will be enough for investors in the middle of the week.
Future monetary policy is also likely to depend on the new head of the US Federal Reserve. In May, Trump ally Kevin Hassett took over from outgoing Jerome Powell. Robert Greil, chief strategist at private bank Merck Finck, expects this to lead to an even greater influence of the US President on the Fed. "And since Trump is more likely to aim for further rate cuts toward two and a half percent, rather than the roughly three percent expected by the market next year, this could result in more than the anticipated three rate cuts," Greil added.
In this case, despite falling rates, investors could find it hard to swallow that the central bank is gradually losing its independence, warned Henning Oligmüller of Landesbank Baden-Württemberg. He therefore considers a weak start to the year for the DAX possible. Since June, the German benchmark index has been trending sideways, with the rally losing steam for months. "Historically, such a constellation has meant that hardly any progress could be observed in the following year," commented Oligmüller. Moreover, there is no tailwind to be expected from further rate cuts by the European Central Bank (ECB).
Most recently, the DAX climbed back up to the round mark of 24,000 points. Its annual gain stands at more than a fifth, and from a technical perspective, the outlook for the benchmark index has clearly improved after the previous correction in November. In addition to monetary policy, a possible peace agreement in Ukraine also plays an important role, said market observer Andreas Lipkow. By contrast, the economic situation in Germany is largely being ignored.
In any case, there are not many data releases on the agenda for the new week. Only industrial production and the trade balance for October are likely to attract attention. On the corporate side, annual results from Thyssenkrupp as well as TKMS, Stabilus, Tui, and Carl Zeiss Meditec are expected during the week. In addition, Deutsche Borse and Munich Re are inviting analysts to their capital markets day./niw/tih/men
--- By Nicklas Wolf, dpa-AFX ---
