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German stocks sink then soar

U.S. investors downplayed fears of a bad outcome in Greece debt talks with its creditors. But German investors were clearly shaken, as a 5% two-day rally this week after a big drop on deal optimism shows.

Indeed, the Germany’s benchmark DAX index, which plummeted nearly 13% from its April high and into official correction mode last week, has rebounded sharply this week amid rising hopes that Greece will seal a deal with its eurozone creditors and avoid a default and possible exit from the eurozone. Athens submittted new fiscal reforms Monday and eurozone finance folks are now reading the fine print and will meet again tomorrow. Global investors are hoping for a deal by the end of the week, perhaps as early as Thursday. In midday trading today, the DAX is up 1.3%, extending its two-day gain this week to 5.1%.

U.S. stocks also rose yesterday, with the Dow Jones industrial average rising 1% or nearly 104 points. The Dow, however, unlike the German stock index, is nowhere near correction territory, as it headed into today’s trading session down 1.1% from its May 19 record close.

Earlier this year, German shares rose sharply, powered higher by the European Central Bank’s monthly bond buying program, which was designed to boost growth and inflation. But the DAX was hit hard by the Greece fears, before rebounding sharply this week amid signs that Athens and its lenders would agree to a deal later this week. For the year, the DAX is still up around 18%.


February 2018
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