German stocks rise after ending at a record high

European Central Bank board member Isabel Schnabel on Tuesday called further rate hikes “very unlikely” and recent inflation data “a very pleasant surprise.” She also failed to push back on market expectations for rate cuts next year, all of which dragged bond yields lower and suggested an 86% chance of a rate cut in March.

Economists at Nomura say the European Central Bank won’t change its rate outlook at its next meeting, but will cut its economic growth forecasts, which will lead to even more rate cuts being priced in.

“We also think markets are unlikely to heed any warning from [ECB President Christine] Lagarde on market pricing being overly aggressive on near-term rate cuts,” they said in a note to clients.

Infineon Technologies
IFX,
+1.88%
shares rose 2%, as did shares of Volkswagen
VOW3,
+1.92%.

One German firm missing out on the rally was Merck KGaA
MRK,
-13.86%,
whose shares fell 14% after a late-stage trial on its multiple sclerosis drug didn’t meet its target. Merck is not affiliated with the U.S. drugmaker of the same name.

Outside of Germany, Inditex shares
ITX,
-1.56%
declined 2% and H&M Hennes & Mauritz
HM.B,
-1.58%
also fell 2% as Deutsche Bank downgraded both retailers to sell from hold, on factors including their belief that the post-pandemic rebound in clothing sales will fade next year.

Tui shares
TUI,
+8.69%
rose 7% as the travel group said its Sept. 30-ending fiscal year results were in line with expectations, and that it expects at least a 25% rise in underlying earnings before interest and tax this year on at least a 10% rise in revenue.