German equities experienced a positive performance on Thursday, with the blue-chip DAX index concluding the day with a notable increase of 1.47%. This upward movement followed the European Central Bank's (ECB) anticipated decision to implement a 25-basis-point reduction in interest rates. The recent policy shift has adjusted the deposit facility rate down to 2.5% from its previous level of 2.75%.
Concurrently, the interest rates for main refinancing operations and the marginal lending facility decreased to 2.65% and 2.90%, respectively. In light of these developments, ING remarked, "With the increased uncertainty and the prospects of large fiscal stimulus, the ECB's direction of travel after today's rate cut is no longer as clear as it was a few weeks ago.
A pause at the next meeting to come to terms with the new macro reality now looks like a possibility." Beyond monetary policy, Germany's construction sector faced challenges, exacerbated by a downturn in February. The Purchasing Managers' Index (PMI) for total activity dropped to 41.2, down from a 20-month high of 42.5 observed in January.
This decline reflects a broad-based contraction across various sub-sectors, largely due to a lack of incoming new work. On the corporate front, Deutsche Post (DHL Group) emerged as the index's top performer, seeing a significant gain of 14.19% after announcing an increase in revenue projections for 2024, despite facing challenging market conditions.
Looking ahead to 2025, the German logistics giant aims to achieve an operating profit exceeding 6 billion euros. Deutsche Bank Research commented on this, stating, "Today's results and actions will go a long way to rebuilding trust with investors in our view. We think guidance for FY 2025 is now set at achievable levels and the medium-term guidance does not put pressure on management to call economic cycles." Meanwhile, Merck KGaA (MRK.DE) also provided an optimistic outlook, stating that it expects net sales for 2025 to range between 21.5 billion euros and 22.9 billion euros, following a return to a "growth path" across all three of its business lines in 2024.
The healthcare group recorded a 3.06% increase in its stock price by the end of trading. In summary, the actions of the ECB and the performance of key corporations such as Deutsche Post and Merck KGaA reflect a complex economic landscape in Germany, marked by both challenges and opportunities. The financial community will be keenly observing these developments as they unfold..