DAX Ahead of ECB Decision: Microsoft and Alphabet in the Spotlight

TVS News AI, editorially supervised, presents DAX Ahead of ECB Decision: Microsoft and Alphabet in the Spotlight.

The DAX is set to open trading on Thursday with a small show of confidence: Broker IG Markets valued Germany's leading index before the Xetra opening at 25,765 points, up 0.2 percent from the previous close of 25,704 points. On Wednesday, the DAX had closed trading with a 0.4 percent gain. This is no supernatural start, but a cautious opening ahead of a day packed with market-moving decisions.

Experts at LBBW also warn that many investors are avoiding larger positions ahead of the pivotal corporate and central-bank decisions. This is why the trading day is split into two stages: First, the figures from Microsoft and Alphabet must be digested, followed by the European Central Bank's interest-rate decision in the afternoon.

Microsoft Is Strong, Alphabet Loses Nearly $400 Billion in Market Value

Microsoft's cloud division drives profit growth

Microsoft convincingly met expectations for its financial results. According to the market report, revenue rose sharply and profit increased by around one-third to almost $37 billion. The strong cloud division was explicitly cited as the driver. The company has therefore delivered exactly the kind of signal investors look for at one of the largest US technology groups: visible growth in the business and higher profit.

Alphabet disappoints Wall Street

Things went differently at Google parent Alphabet. Profit fell by around a quarter to just under $26.2 billion, missing Wall Street's expectations. Investors were particularly concerned about high spending on AI infrastructure. This is the decisive difference from Microsoft: At Microsoft, strong cloud development was the focus, while at Alphabet, heavy investment in artificial intelligence became a burden.

The direct effects on the share price were clear. Alphabet plunged 10 percent in US after-hours trading. As a result, its market capitalization fell by almost $400 billion. Microsoft and Alphabet have therefore delivered not just two sets of figures, but two opposing signals for sentiment in large technology stocks.

The Fed Has Delivered, and the ECB Is Due This Afternoon

The key interest rate initially remains unchanged

The US Federal Reserve has already taken its step. It kept the key interest rate unchanged shortly before the midterm elections; the monetary-policy key rate remains in the range of 3.75 to 4.00 percent. Although policymakers sounded more positive about the US economy, they also said inflation would remain high. According to the market report, an interest-rate increase has therefore probably only been postponed. Most investors now expect higher key interest rates in December.

Economists Expect 2.5 Percent

The ECB will also announce its interest-rate decision that day. Economists assume it will leave the key interest rate at 2.5 percent. Because of high inflation, however, many experts expect an increase in December — in parallel with US expectations. The focus in the afternoon is therefore not just one interest-rate figure. The market question is how the ECB will frame a December move.

The Fed has already delivered this monetary-policy portion of the trading day. Attention therefore shifts from the past to the pending ECB decision: Will the key interest rate remain at 2.5 percent, and what December path will the ECB signal at the same time?

Why the DAX Is Initially Expected to Be Only Slightly Stronger

0.2 percent before Xetra, but no clear direction

The expected slight strength in the DAX matches LBBW's cautious tone. The 0.2 percent premium before Xetra is a snapshot ahead of the opening. The market report cites no specific target level and no fixed upward movement for the trading day. The figures from the two US technology groups and the European interest-rate decision could change the direction.

The timing explains the restraint. The technology earnings reports provide the first impulse for sentiment in technology and growth stocks. In the afternoon, the ECB decision can influence financial-market expectations and thus the DAX's price performance. Microsoft delivers the stronger operational news, while Alphabet delivers the significantly weaker news. For the DAX, both must be read alongside European monetary policy.

The global technology mood was also mixed. Samsung Electronics did report a record profit that nearly multiplied ninefold in the third quarter. The share nevertheless fell by around four percent because net profit missed analysts' expectations. In Tokyo, the Nikkei rose by around one percent to 64,635 points following an increased profit forecast from Advantest. So reacts: High profits alone are not enough when expectations or concerns about ongoing investments are decisive.

The Trading Day in the Right Order

First the financial results, then the key interest rate

For the DAX, the order is clear: First the corporate results from Microsoft and Alphabet, then the ECB interest-rate decision in the afternoon. Before that is a predicted slightly positive DAX opening at 25,765 points. Afterward, the market will be looking much more clearly for concrete signals.

The strongest operational news comes from Microsoft: almost $37 billion in profit and a strong cloud division. The most pronounced negative news comes from Alphabet: $26.2 billion in profit, a roughly 10 percent share-price decline after hours and almost $400 billion less market value. For European trading, it then comes down to whether the expected ECB key interest rate of 2.5 percent loosens investor restraint or whether the prospect of a December increase weighs on the DAX.