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DAX underperforms, missing out on broader European equity rally

LONDON: Euro zone shares rose on Tuesday as a batch of weak inflation data increased the chances the European Central Ba

September 30, 2014

imageLONDON: Euro zone shares rose on Tuesday as a batch of weak inflation data increased the chances the European Central Bank will introduce new stimulus measures to boost the region's flagging economy.

But Germany's DAX index fell as the Russian rouble plunged. Many German companies have strong ties to Russia, whose economy is suffering from sanctions imposed by the West after Russia's confrontation with Ukraine.

Euro zone inflation slowed to 0.3 percent in September, in line with market forecasts, because of falling prices of unprocessed food and energy, according to a first estimate by the European Union's statistics office.

Inflation in the euro zone remains below the ECB's target of close to but under 2 percent as the regional economy stagnates. That makes it more likely the central bank will introduce full-blown quantitative easing (QE) and buy government bonds to stimulate the economy.

The euro zone's blue-chip Euro STOXX 50 index advanced by 0.5 percent to 3,203.77 points.

"At least the inflation figure was not complete deflation and investors will still be looking out for any hints on QE on Thursday," when the ECB meets, said Rupert Baker, a European equity sales executive at Mirabaud Securities.


The Russian rouble's weakness caused the DAX to slip by 0.1 percent. European automobile stocks also fell after U.S. car manufacturer Ford slashed its profit forecast for this year.

The STOXX Europe 600 Automobiles & Parts Index was down by 1.3 percent, with French car company Renault falling 3.5 percent while Italian rival Fiat retreated by 3.9 percent.

Some traders remained cautious, pointing to tensions between China and Hong Kong, where tens of thousands of pro-democracy protesters extended a blockade of Hong Kong streets on Tuesday.

"There is still a lot of hesitation. We're getting some bearish signals such as a rise in volatility and a drop in shares of financial institutions. There's just no direction at this point, but I remain cautious," said Jean-Louis Cussac, head of Paris-based firm Perceval Finance.

Copyright Reuters, 2014