DAX Surges, Euro Strengthens as Merz Secures Victory in German Elections; Wall Street Anticipates Nvidia’s Earnings
European financial markets experienced an upward trajectory on Monday as Germany’s electoral results yielded a mainstream outcome, bolstering investor sentiment. Meanwhile, U.S. equity futures rebounded, fueled by anticipation that Nvidia’s upcoming earnings report will validate the technology sector’s soaring valuations.
DAX Futures and Euro Rally
German index futures DAX1! surged by 1.2%, while the euro appreciated 0.44% to $1.0507 (EURUSD), inching closer to testing its January peak at $1.0535. Simultaneously, EUROSTOXX 50 futures (FESX1!) climbed 0.66%, whereas FTSE futures (Z1!) saw a marginal 0.1% uptick.
The recently appointed conservative leader, Friedrich Merz, now faces the challenge of assembling a coalition government. The political landscape remains uncertain as negotiations unfold, with the possibility of a multi-party alliance prolonging the process.
This development coincides with an impending European Union summit on March 6, where leaders will deliberate on additional aid for Ukraine and strategies to finance Europe’s defense expenditures.
Thin Liquidity in Asian Markets Amid Tokyo Holiday
With Tokyo markets closed for a holiday, MSCI’s broadest index of Asia-Pacific shares (MIAPJ0000PUS), excluding Japan, declined by 0.5%. Futures for Japan’s Nikkei index (NKc1) hovered at 38,310, trailing behind the previous cash session’s close of 38,776.
Chinese equities exhibited lackluster performance, with blue-chip stocks (399300) dipping 0.26%, and Hong Kong’s Hang Seng Index (HSI) retreating by 0.34%, retracing some gains from its recent tech-driven ascent.
According to Barclays analysts, China’s regulatory stance on Big Tech and the private sector has taken a notable shift. This could indicate a policy recalibration aimed at revitalizing domestic equity markets, attracting capital inflows, and potentially altering bullish dollar and cautious emerging-market strategies.
Wall Street Rebounds Ahead of Nvidia’s Crucial Earnings Report
Futures linked to the S&P 500 (ES1!) and the Nasdaq (NQ1!) both advanced 0.5%. The Nasdaq Composite, which tumbled 2.5% last week—marking its steepest decline in three months—has placed additional weight on Nvidia’s earnings release on Wednesday.
Market participants anticipate Nvidia (NVDA) to report fourth-quarter revenue of approximately $38.5 billion, alongside first-quarter guidance around $42.5 billion. Options markets suggest a potential 8% swing in share price depending on whether earnings exceed or fall short of expectations.
Investor sentiment turned cautious last Friday following an unexpected contraction in the U.S. services sector, exacerbated by tariff concerns and mounting cost pressures. Reports also surfaced suggesting that the White House is pressing Mexico to impose tariffs on Chinese imports, further complicating global trade dynamics.
Inflation Concerns Resurface
The Federal Reserve’s preferred inflation gauge, due for release on Friday, is projected to indicate a decline in core inflation from 2.8% to 2.6%. However, market jitters over potential tariff implications could overshadow the data.
A survey released Friday revealed that U.S. consumer inflation expectations for the next 5 to 10 years climbed to 3.5%, marking the highest level since 1995.
Analysts at ANZ cautioned that “long-term inflation expectations risk becoming unanchored”, citing a series of disappointing U.S. economic indicators. They emphasized that the Federal Reserve may need to adopt a heightened sense of caution in its monetary policy stance.
At least nine Fed officials are scheduled to speak this week, with multiple appearances expected from some policymakers. Their remarks will likely reinforce the central bank’s measured approach to interest rate adjustments.
Currently, markets are pricing in no rate cuts until July, with only two reductions projected for the entire year.
Bond Market Reaction and Currency Fluctuations
U.S. Treasury yields dipped in response to Friday’s weak services data, though persistent inflationary concerns and bond supply uncertainties remained hurdles. On Monday, 10-year Treasury futures (TYc1) declined 5 ticks.
The softening of U.S. Treasury yields, particularly in real terms, has weighed on the dollar against the yen, as speculation grows that the Bank of Japan may implement another interest rate hike.
The U.S. dollar (USDJPY) stood at 149.46 yen, having fallen 2% last week, placing critical technical support at 148.65 under threat. Meanwhile, the dollar index (DXY) edged down 0.2% to 106.31, driven by losses against the euro, British pound, and Swiss franc.
Commodities Update: Gold Holds Firm, Oil Slips
In commodities, gold (GOLD) remained well-supported at $2,937 per ounce, extending its eight-week winning streak.
Conversely, crude oil continued its downward trajectory amid speculation that a potential peace settlement in Ukraine could lead to an easing of sanctions on Russia, thereby increasing Russian oil exports.
Brent crude (BRN1!) edged down 6 cents to $74.37 per barrel, while U.S. West Texas Intermediate (CL1!) declined 13 cents to $70.27 per barrel, after hitting a two-month low earlier in the session.