DAX Price Forecast: European Stocks Hit 1-Year High on Positive Momentum.

Highlights:

• European markets rise on positive US data and earnings hopes.
• European banks surge 3% on upbeat Q1 earnings from US banks.
• Seasonal inflows may have contributed to the market’s positive performance

Overview:

European stock markets closed higher on Friday, with Germany’s DAX, the UK’s FTSE, and France’s FTSE all ending the day in positive territory. This was due to traders digesting U.S. economic data and the start of earnings season.

The positive earnings from major U.S. banks and hopes of an end to the Federal Reserve’s rate-hiking cycle also helped boost European shares, which hit their highest in over a year.

Investors have been optimistically pricing in two Fed rate cuts in the second half of the year and only one more rate hike to come.

April is typically a strong month for European stocks, so seasonal inflows may have also contributed to the market’s positive performance.

European Banks Lead Gains as Stoxx 50 Hits 22-Year Peak

The pan-European Stoxx 600 index continued its positive momentum, closing 0.50% higher, marking its fourth consecutive positive session.

The index hit its highest level since February 2022 earlier in the session and gained 1.7% for the week, its longest weekly winning streak in 2023.

The blue-chip STOXX 50 index also rose 0.6%, hitting a 22-year peak. European banks were the top gainers, jumping 3.0% to hit a one-month high after upbeat Q1 earnings from major US banks. However,

Finnish state-owned electricity firm Fortum fell 4.6% amid its dispute with Danish wind turbine manufacturer Vesta.

European Real Estate Stocks Jump

Real-estate stocks in Europe gained 1.8% and sentiment was lifted by Singapore’s central bank’s decision to keep key rates unchanged. Hermes rose 1.5% after reporting better-than-expected Q1 sales, driven by strong demand from China.

Dechra Pharmaceuticals continued to trade higher, up 33.5%, following news of private equity takeover talks. However, concerns are mounting about a potential downturn in the European commercial real estate market, with some analysts forecasting a 20%-40% decline in real estate stocks by next year.

Utilities dropped 1.5%, while TomTom jumped 7.3% after reporting a surprise Q1 profit.

ECB Policymakers Warn of Underlying Price Pressures Due to Wage Growth

ECB policymakers are advocating for further interest rate increases, as per the statements made by ECB President Christine Lagarde. She stated that underlying price pressures are likely to remain high for an extended period due to significant nominal wage growth. In March, German wholesale prices increased by 0.2% compared to February, although the rate of increase was slower compared to the previous year.

US Retail Sales Decline, Sparking Speculation of Fed Rate-Hike Halt

In March, the U.S. producer price index fell by 0.5% compared to the previous month. Retail sales were also down by 1%, leading to expectations that the Federal Reserve will halt its current rate-hiking cycle.

The latest data shows that U.S. consumer price inflation has cooled, indicating a 25 basis point Fed hike in May. Financial markets are predicting an 82% probability of this, according to CME’s FedWatch Tool.

However, the consumer sector faces significant challenges, including job cuts and rising costs. These challenges make it unlikely that the Federal Reserve will continue to hike rates.

A pause in rate hikes may be necessary to support consumer spending and the broader economy. This is not a favorable combination for consumer spending, particularly credit card spending and car loans.