Stock Market Increase: Wall Street and Japan Fuel Growth in Dax Index

Record Highs in Global Stock Indices: A Closer Look

The year 2025 saw record highs in the Nasdaq, Nikkei, and Euro Stoxx 50, driven by several key factors. These included strong economic and fiscal stimulus measures, reduced trade tensions, and favorable monetary policies.

Boosting the Euro Stoxx 50

In Europe, the Euro Stoxx 50 saw gains due to increased government spending on infrastructure and defense, particularly in Germany and across EU countries. This collective spending boosted companies in relevant sectors and led to Eurozone equity strength.

The Strength of the Nikkei

In Japan, the Japanese yen appreciated due to potential rate hikes by the Bank of Japan, attracting capital flows into Japanese assets and supporting the Nikkei index.

The Nasdaq's Resilience

Despite the U.S. dollar's weakness, growth-oriented sectors, such as the technology-heavy Nasdaq, continued to perform well. This was partly due to moderate Fed rate cuts and ongoing innovation sectors.

The Weakening U.S. Dollar

The U.S. dollar weakened amid policy volatility and uncertainty, capital flight from the dollar, interest rate divergence, improved Eurozone outlook, and trade war effects.

Policy volatility and uncertainty: Inconsistent trade and tax policies under the U.S. administration, including tariff escalations and regulatory reversals, eroded investor confidence in the dollar as a safe haven.
Capital flight from the dollar: Investors reduced their allocations to dollar assets, moving funds into gold, Eurozone equities, Japanese yen, Swiss franc, and emerging market bonds.
Interest rate divergence: The Fed’s expected moderate rate cuts contrasted with deeper cuts by the ECB and BoE, while the Bank of Japan indicated possible rate hikes.
Improved Eurozone outlook: The euro gained strength due to better growth expectations alongside stimulus, making the dollar comparatively weaker given the heavy weighting of the euro in the U.S. Dollar Index (57%).
Trade war effects: Tariff uncertainties created market volatility and discouraged investments in dollar-based assets, further pressuring the greenback.

The Impact on Global Markets

The record equity highs in Nasdaq, Nikkei, and Euro Stoxx 50 were supported by regional fiscal stimulus, stable or improving monetary policies, and investor rotation into these markets. Meanwhile, the U.S. dollar weakened amid domestic policy uncertainty, capital shifts to alternative assets, and interest rate moves favoring other currencies.

The Euro Stoxx 50 reacted with gains to the new record highs on Wall Street, Nasdaq, and the Nikkei. There was relief among investors that tariffs had not yet had the feared impact on prices. At the long end of the yield curve, i.e., in the 30-year segment, yields retreated slightly. The 30-year Bund yield was at 3.25% in the afternoon.

The MDax was weaker compared to the other indices, with Stroer, the out-of-home advertising specialist, being the biggest loser on Wednesday, falling over 7% at the index's bottom. On the other hand, Europe’s largest tour operator exceeded quarterly forecasts for earnings and sales and raised its full-year guidance. Renk, the tank transmission manufacturer, was one of the strongest performers in the MDax after its quarterly sales exceeded expectations.

The German benchmark index made significant gains on Wednesday, improving by 0.7% to 24,186 points. The euro rose by 0.5% to 1.1730 dollars due to the weakening dollar. The possibility of a Fed rate cut continued to put pressure on the dollar. Tui was the strongest performer in the MDax on Wednesday, rising almost 7% to a February high.

[1] Investopedia. (2021). U.S. Dollar Index (DXY). Retrieved from https://www.investopedia.com/terms/u/usdollarindex.asp

[2] European Central Bank. (2021). Euro area government bond yields. Retrieved from https://www.ecb.europa.eu/stats/money/bonds/html/index.en.html

[3] Federal Reserve Bank of St. Louis. (2021). U.S. Inflation Rate. Retrieved from https://fred.stlouisfed.org/series/CPIAUCSL

[4] Bank of Japan. (2021). Monetary Policy. Retrieved from https://www.boj.or.jp/en/policy/index.htm

[5] European Commission. (2021). EU budget and recovery plan. Retrieved from https://ec.europa.eu/info/public-opinion/archives/ebs/ebs-86_en.htm