The CAC 40 and DAX indices are hovering near their all-time high ahead of the upcoming Federal Reserve and European Central Bank (ECB) interest rate decisions. The German DAX rose to an all-time high of €15,922 while the CAC 40 index soared to a record high of €7,571.
ECB, Fed decisions and earnings
The DAX and the CAC 40 index have been in a strong bullish trend recently as investors reflect on corporate earnings and the upcoming decisions by the Fed and ECB. In France, luxury goods companies like LVMH, L’Oreal, Hermes, and Kering published strong financial results, helped by China’s recovery.
Meanwhile, European banks like Deutsche Bank, Societe Generale, and Unicredit have been a bit immune in the ongoing bank crisis. These banks, which are highly regulated, have higher capital requirements than their American rivals.
The next key catalyst for the CAC 40 and DAX index is the upcoming interest rate decisions. Analysts expect that the Federal Reserve will hike interest rates by 0.25% on Wednesday and then point to a pause.
The pause will be necessary for the bank to assess the impact of the recent hikes. While the Fed is an American central bank, its decision will have an impact on the European indices.
The key economic news to watch will be the upcoming interest rate decision by the European Central Bank (ECB). Analysts expect that the bank will hike interest rates by 0.25% and point to at least two more increases since inflation remains sharply higher. The ECB has more room to hike interest rates since it was late in hiking. In a statement, an analyst at Societe Generale said:
“After the shock of what has happened, banks are going to be much more cautious today. My concern is that if the ECB keep squeezing the financial system too much it may lead to a credit crunch.”
DAX index, CAC 40 forecast
So, will the CAC 40 and DAX indices continue rallying in May. There is a likelihood that the two will continue rising as investors focus on central bank rate hikes capitulation. As such, the CAC 40 index will likely continue rising as buyers target the next key resistance at €7,800 while the DAX index will rise to about €16,500.
The main risk for the CAC 40 and the DAX index is the banking sector and the situation in the commercial real estate industry in the US. If the banking sector continues, there is a likelihood that the indices will pull back in May.
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