The DAX index is struggling as investors react to the ongoing energy crisis in Germany. The index is trading at €13,126, which is about 20% below the highest point this year, meaning it is now in a bear market. It is also hovering near its lowest level since March 9th.
The DAX 40 index has been under pressure as investors continue worrying about the rising risks of a recession and corporate margins. Current conditions provide the perfect signs of a recession in Germany and other countries. For example, the unemployment rate in Germany has been in a strong downward trend.
At the same time, the country’s inflation has surged in the past few months. For example, data published last week revealed that inflation rose to 7.9% in May this year as the cost of doing business rose. Moreover, analysts believe this inflation will keep rising in the coming months.
Meanwhile, the European Central Bank (ECB) has now embraced a more hawkish tone and is expected to start hiking interest rates in its July meeting. The baseline is that the bank will deliver rates of 0.25%. As such, a combination of high rates and inflation and a low unemployment rate is perfect for a recession.
At the same time, many DAX index constituents are expected to have thinner margins as the cost of energy rises. In addition, last week, Russia decided to slash its natural gas delivery to Germany by 60% as the crisis in Ukraine continues. As a result, Germany was forced to restart its coal plants. Therefore, all these factors will likely have an impact on German industrial companies.
All but four DAX index constituents have been in the red in the past 30 days. The only gainers are companies like Puma, Continental, Deutsche Bank, and BMW. On the other hand, companies like Zalando, HelloFresh, Siemens, Infineon, and Airbus have all crashed by over 10% in this period.
The daily chart shows that the DAX 40 index has been in a strong bearish trend in the past few days. The sell-off saw it drop below the important support at €13,368, which was the lowest level on May 10th. Along the way, the index moved below the 25-day and 50-day moving averages while the MACD moved below the neutral point.
The index will likely continue falling as bears target the next key support at €12,500. However, a move above the resistance level at €13,368 will invalidate the bearish view.
This post was last modified on Jun 20, 2022, 10:55 BST 10:55