DAX defies gloomy backdrop as AI rally raises fresh questions

Against the current rather gloomy backdrop, investors in Frankfurt continued to cling to the hope of diplomacy today. Hope springs eternal. Just how fragile that hope remains can currently be seen particularly clearly in oil and gold prices. Every report of potential progress or setbacks in negotiations triggers an immediate reaction. Oil and gold have become the seismographs of diplomacy in the Middle East, and equity markets are moving in step with their swings.

At the same time, what has so far been the most important pillar of the equity rally is beginning to wobble from two directions. On the one hand, concerns are mounting over hyperscaler Oracle and the financing of its enormous investment in AI data centres. On the other, OpenAI’s training pause is forcing investors to reassess their previous assumptions about growth and monetisation across the AI sector. After the euphoria of recent months, the sector is increasingly entering a phase in which the financial case needs to be proven. The key question is no longer how much money is being invested in AI, but when and to what extent that capital will generate corresponding returns.

This is making the broader market increasingly fragile and could lead to significantly higher volatility over the coming trading sessions. At the same time, elevated energy prices remain a considerable drag on equities. Unless they fall significantly soon, the consequences could extend far beyond the next set of inflation data. Weaker consumer spending and further interest-rate hikes could weigh on companies and households for several quarters.

The equation is also becoming increasingly uncomfortable for governments. If bond yields remain elevated, the cost of refinancing high levels of public debt will rise, further restricting governments’ fiscal room for manoeuvre. What began as a short-term energy price shock could therefore increasingly develop into a longer-term burden on consumers, businesses and public finances.