Broken short-term uptrend of DAX: Potential subsequent developments explored
Fresh Take:
Germany's stock market faced turbulence last Wednesday, despite a slight boost in economic prospects, as reflected by the Ifo business climate index. The index increased by 1.6 points to 90.2 in January, surpassing expectations. However, this thrill was short-lived, and the German stock index DAX dipped momentarily to 14,970 points.
Despite a more optimistic outlook on future prospects, companies rated their present situation less positively. Economists acknowledges this uptick but also caution against overzealous optimism, pointing out that the slight deterioration in the current company situation doesn't align with the hopeful economic recovery picture.
The instability in the DAX isn't solely attributed to domestic factors. Global trade tensions and spillover effects from these contested situations have been dominating regional economic signals. For instance, the US tariff policy, which led to a global selloff in early April, poses a significant threat to the DAX as an export-oriented index.
Similarly, bond market instability, triggered by the Trump administration's tariff policies, has caused cross-asset class volatility. This instability in the bond market has typically overshadowed positive business sentiment indicators like Ifo.
It's worth noting that improvements in the Ifo index may gradually temper losses for the DAX. However, lingering global trade risks might persist, causing continued volatility. The DAX is currently in a neutral zone, likely to fluctuate between around 14,900 and 15,150 points in the coming days. A further decline to around 14,800 points in the short term is possible if the 14,900 points are undershot. Conversely, if the DAX manages to surpass its 2023 high of 15,269 points, the chart picture would brighten again.
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Insight: The ongoing global trade tensions and contagion effects are primarily responsible for the volatile state of Germany's DAX index, overshadowing local economic signals like the Ifo business climate index.
- The optimism regarding future economic prospects in Württemberg, as indicated by the Ifo business climate index, didn't prevent the DAX shares from deteriorating, with the index dipping to 14,970 points.
- Despite the slight improvement in the Ifo index, many economists advise caution when investing in German businesses, as the current company situation shows signs of a deterioration contrary to the hoped-for economic recovery picture.
- Finance experts link the instability in the DAX not only to domestic factors but also to global trade tensions, as evidenced by the US tariff policy leading to a global selloff, which poses a significant threat to the stock-market.
- Bond market instability, triggered by global trade tensions, has induced cross-asset class volatility, and often overshadows positive business sentiment indicators such as the Ifo.
- As the DAX hovers around the neutral zone (approximately 14,900 to 15,150 points), lingering global trade risks may continue to cause short-term volatility, with a potential decline to around 14,800 points if the 14,900 points are undershot.
