Germany's DAX index soared to a new record high on Wednesday, propelled by unexpected data revealing a drop in industrial orders. This decline in the Eurozone's largest economy has stoked anticipations of swift interest rate cuts by the European Central Bank (ECB) in the upcoming year. The European STOXX 600 index saw a rise of 0.6% while the DAX ended up 0.8% higher.
Disappointing Industrial Orders Data
German industrial orders fell by 3.7% month-on-month in October, a surprising downturn. This data has reinforced predictions of ECB interest rate reductions in 2023. Isabel Schnabel, a German ECB board member's dovish shift, further underpins these expectations. The descent in Eurozone government bond yields to multi-month lows also bolstered equities.
Individual Stocks Performance
Among individual stocks, Germany's Volkswagen witnessed a 5.4% climb after an audit of its jointly owned site in Xinjiang, China, discovered no signs of forced labour. On the contrary, Merck's shares plummeted 13.1% following the failure of its experimental multiple sclerosis drug, evobrutinib, to achieve the primary goal in late-stage trials. British American Tobacco also suffered an 8.4% loss after announcing it would take a hit of around $31.5 billion on writing down the value of some U.S. cigarette brands.
Expectations and Speculations
The Frankfurt DAX's record high comes amid increasing bets of a peak in global interest rates. The disappointing German factory orders data has sparked increased speculation that the ECB may have to resort to sharp rate cuts early next year. Interestingly, while the DAX set a new record high, the FTSE 100 closed lower for the second consecutive day. The German DAX's consistent record highs amid dismal German factory orders data is indeed a fascinating twist, revealing the complex dynamics of global financial markets.