The German benchmark index DAX rose 4.18% on a month on month basis and rose 26.85% on a year on year basis to reach an all-time high of 9351 in the month of November 2013. The Dax along with the Dow, Nasdaq and S&P 500 is one of the best performing equity indices over the last one year. The Nikkei is the best performing equity index over the last one year.
Why is the Dax performing so well despite Eurozone weakness? The GDP growth for the German economy registered a 0.3% increase in the third quarter of 2013 as against a 0.7% increase in the second quarter of 2013. The contribution to GDP growth came from growth in domestic demand with Gross Fixed Capital formation growth of 0.5% in machinery and equipment and 2.4% in construction compared to second quarter of 2013. The Government final consumption expenditure increased 0.5% and household final consumption expenditure increased 0.1% compared to second quarter of 2013. The imports for the third quarter of 2013 rose 0.8% and exports rose 0.1% compared to second quarter of 2013. On a year on year basis GDP growth was reported at 1.1% for Germany. The inflation was recorded at 1.34% in November 2013 as against 1.24% in October 2013. Unemployment rate remained unchanged at 5.2% in October 2013. Germany is the second largest exporter in the world and exports account for more than one third of the national output. The recent growth has been achieved more by domestic demand and less by exports and this has fuelled a rally in the stock markets with significant gains on a month on month and a year on year basis. The optimism is expected to continue in the near future for the largest economy in the European Union.
ECB has played a role in the performance of the DAX. The European Central Bank cut rates to record lows of 0.25% in November on the back of inflation trending at 0.7% levels in the Eurozone. Low interest rates coupled with liquidity from Fed, Bank of Japan and ECB has led to rallies in developed market equities.
The GDP growth for the Euro area was reported at 0.1% in the third quarter compared to second quarter of 2013. The GDP growth rate for the second quarter was reported at 0.3% compared to the first quarter decline of 0.2% in 2013 but was positive as the Euro area came out of recession to witness growth after six previous quarters of decline in GDP growth. The Unemployment rate continues to remain high at 12.20% for the month of September 2013 for the Euro area. Inflation rate has remained low at 0.7% for the month of October 2013 compared to 1.1% in the month of September 2013. The recovery in the Euro area is expected to continue in the near future that would drive the stock market indices to higher levels in the immediate future.
The US markets continue to rally with Dow Jones Industrial Average at record high of 16097 in the month of November 2013. The Non-Farm Payrolls data saw the US economy adding 2,04,000 jobs in the month of October 2013 from 1,63,000 jobs in September 2013. The positive data has given rise to the speculation that the Federal Reserve would reduce the stimulus that is in the form of asset purchases of USD 85 billion in bonds each month. The federal funds rate is however expected to be kept near zero at 0.25% for a longer time period citing growth concerns for the economy. The US benchmark indices have had a good run in the last one year with the Dow Jones Industrial Average, the NASDAQ and the S&P 500 delivering returns of 24%, 34% and 28% respectively.
The Shanghai composite and the Hang Seng indices rose 3.21% and 2.45% respectively on a month on month basis driven by the economic reforms that were announced by the Chinese Government to move towards a free economy. The Indian benchmark indices Nifty and Sensex declined 2.54% and 2.40% respectively on a month on month basis after reaching record highs in the month of November 2013.
Gold prices have fallen 7.16% to USD 1244/Oz on a month on month basis in November 2013 as positive sentiment in the developed markets has reduced investments in the yellow metal that is seen as a safe haven. The crude oil prices remained flat at USD 110.89/bbl on a month on month basis and on a year on year basis for the month of November 2013.