The DAX index rose by more than 0.75% as investors reacted to the positive news about Bayer. The index also rose as investors started to price a bottom after the German economy contracted at the fastest pace since 2009. It also shrugged-of the brewing tensions between China and the US.
Bayer share price rose by almost five per cent after the company reached a verbal agreement on most of its lawsuits. The agreement will see the company pay billions of dollars to about 125,000 US cancer patients who blamed the Roundup weed killer for the illness.
For starters, the problems started when Bayer acquired Monsanto. At the time, Monsanto was facing a big lawsuit by patients who said that the weed killer was the main cause of the disease. As a result, Bayer agreed to spend more than $10 billion to compensate the patients.
The new agreement will end the lawsuit as the company attempts to move past the illness. The current agreement will need to be passed by the company’s supervisory board. Also, as part of the deal, Bayer will continue to sell Roundup in the US for use in backyard and farms.
Bayer’s acquisition of Monsanto has been named as the worst acquisition ever. Indeed, Bayer share price has dropped by more than 40% after the deal was reached.
Stocks in the DAX index ignored the weak GDP data from the statistics office. The numbers showed that the country’s GDP contracted by 2.2% in the first quarter. That was the worst-performance in more than a decade.
The statistics office blamed the weakness to low investments in fixed assets and low consumer spending. Consumer consumption dropped by 3.2% in the first quarter while machinery investment fell by 6.9%.
Analysts believe that the situation will change as the country reopens.
Bayer share price was the best-performing in the DAX. It was followed by Wirecard, MTU Aero, SAP, and Lufthansa, which rose by more than 1%. The only laggards in the index were BMW, Fresenius, Continental, and Deutsche Telekom.
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The DAX index is trading at 11,130, which is slightly above the 50% retracement on the daily chart. The price is also slightly below the April 30 high of 11,320. Also, the DAX is above the 50-day and slightly below the 100-day EMA. Therefore, I expect the trend to remain bullish so long as the price remains above the 50% retracement. Bulls will need to defend the 100-day EMA and the previous high at 11,320.
On the flip side, a move below 10,606 will invalidate this prediction. This price is between the 50% and 38.2% retracement. It is also along the lower side of the May 18 candle.