On Thursday, German shares witnessed a recovery, with the blue-chip DAX index advancing by 0.77% at the close of trading. This upturn followed the European Central Bank's (ECB) widely anticipated decision to implement a 25-basis-point cut in interest rates. This pivotal adjustment aims to stimulate economic growth amidst a landscape of declining inflation rates. The rally in the German stock market was significantly led by prominent blue-chip companies, particularly Sartorius (SRT.F), which saw an impressive gain of 16.45% after the release of its third-quarter earnings report.
The German life science group’s projections for full-year sales revenue remain consistent with the previous year, showcasing a modest outlook that ranges from a low single-digit negative to a low single-digit positive growth. Commenting on the company’s performance, Berenberg, a well-regarded investment bank, noted, "Overall, Q3 2024 appears to be a solid print compared to the company's recent history and against low expectations, especially when compared to the weaker results shared by some of Sartorius's competitors." In broader economic news, the ECB's Governing Council made crucial adjustments, reducing interest rates for the deposit facility, main refinancing operations, and the marginal lending facility to 3.25%, 3.40%, and 3.65%, respectively.
This decision stemmed from a thorough reassessment of the inflation outlook, considering underlying inflation dynamics and the overall impact of monetary policy. In their official statement, the Governing Council clarified that they are not committed to a specific interest rate trajectory. They emphasized a flexible approach, indicating that future decisions will be guided by data assessments and a meeting-by-meeting review process.
However, they remain open to making necessary modifications in response to evolving economic conditions. "Given the prevailing trends of declining inflation and a weak economic environment, particularly within Germany and extending to the eurozone at large, the ECB's decision to lower the key interest rate is well justified.
Nevertheless, inherent upside risks to inflation remain, particularly concerning service providers. Therefore, it is prudent not to commit to further cuts in the interest rate," stated ifo Institute President Clemens Fuest. At the same time, recent data released by Eurostat highlighted that the annual inflation rate in the eurozone moderated to 1.7% in September, a decrease from 2.2% in August.
Additionally, core inflation showed signs of easing as well, slowing to 2.7% from the previous rate of 2.8%. This trend suggests a stabilizing economic environment, potentially fostering further growth in the equity markets..