Investors and traders celebrated on Tuesday the decision by the German Bundestag to approve the XXL debt package aimed at improving infrastructure and military upgrades, pushing the DAX to a new all-time high during the trading session. By the end of the trading day, the DAX closed up by just over 0.9 percent at 23,380 points.
On Tuesday, the biggest beneficiaries were shares of Rheinmetall, Deutsche Bank, and Bayer AG. After the impressive Ukraine rally, a stock split is being discussed at Rheinmetall, which would make the stock more attractive for smaller investments. It is expected that a significant portion of the debt package will flow into the books of the defense company.
Investors and traders are seeing light at the end of the recession tunnel and view Germany once again as the driving force in Europe. The war in Ukraine and the new US administration seem to be bringing democratic parties and Europe closer together.
Technically, however, it is worth noting that the trading range has narrowed over the last two trading days. There is a realistic possibility that the US interest rate decision and profit-taking could put an end to the current celebratory mood, which should be carefully considered.
British Stock Market Muted Ahead of Bank of England Rate Decision
In the UK, the stock index also rose, though more modestly. By the end of the trading day, it posted a gain of 0.3 percent, mainly driven by banking stocks. However, the muted increase reflects that the Bank of England is set to decide on monetary policy later this week.
The expectation in the UK is that the interest rate will remain at 4.5 percent. However, market expectations lean towards a rate cut, meaning there is potential for disappointment. This rate cut scenario is likely already priced in. The British pound, accordingly, shows no sign of weakness. Any attempt to push the pound lower is immediately countered by the bulls.
Should the Bank of England display even the slightest hint of a conservative stance, it could accelerate the rally further, especially if the Federal Reserve presents itself dovishly in its interest rate decision today, Wednesday.
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