The DAX is expected to open today's trading session at around 25,530 points. Positive momentum is coming from Asia, where strong quarterly results from semiconductor manufacturer SK Hynix triggered substantial gains across the technology sector and pushed South Korea's KOSPI sharply higher. The successful stock market debut of Indian technology group Jio is also boosting investor confidence. Hopes are growing that the recently questioned AI boom may still have enough growth momentum to justify elevated valuations.
Positive signals are also emerging from the European earnings season. Results from Deutsche Bank, BASF and BNP Paribas are supporting market sentiment. Banks, in particular, continue to benefit from a relatively favourable operating environment and have so far shown no signs of significant pressure from loan defaults. This is an important indication that the weaker economic environment has yet to feed through fully into the financial sector.
However, the real test for equity markets will come this evening. The Federal Reserve's interest rate decision and the subsequent quarterly earnings releases from Alphabet and Microsoft will bring two crucial market drivers into focus almost simultaneously. Although no change in interest rates is expected, the renewed sharp rise in energy prices is likely to prompt cautious, potentially more hawkish communication from the Fed. Investors will therefore be scrutinising every word from Fed Chair Kevin Warsh. What matters today is not what the Fed does, but what its message implies for the path of interest rates over the coming months.
For Alphabet and Microsoft, attention will focus primarily on the relationship between enormous investments in AI infrastructure and the development of free cash flow. Doubts about the long-term financial sustainability of the AI boom have increased considerably in recent weeks. Technology companies must now demonstrate that their multibillion-dollar investments not only promise growth but also generate sufficient cash to support their ambitions. Investors no longer want to be convinced solely of the future potential of artificial intelligence. Increasingly, they want proof that it can deliver sustainable returns.
