Dow Jones
The DAX index is set to decline by more than 100 basis points when it opens today. The decline expected today comes a day after the index rose by more than 1% as investors reacted to US stimulus.
The decline of the DAX index is an outlier given the strong performance we saw in Wall Street and Asia. Yesterday, the main indices in the United States rose by more than 5% while those in Asia remained largely in the green.
The DAX index is declining after Volkswagen Group, the biggest company in Germany, sounded alarm about its liquidity. In a statement, the company asked the ECB to accelerate its pace of buying commercial paper from big companies. In a statement to the Financial Times, the company’s CFO said, “there is a lot of pressure on the incoming money flow.”
The company, which is also the biggest auto company in the world, is going through a difficult time. There is increased competition in the auto industry as more companies like Tesla continue to grow. Second, the transition to electric vehicles means that the company has to spend more money on research and development.
Third, the company has either closed or lowered the capacity of its plants as it deals with the Coronavirus crisis. Meanwhile, there are concerns that the auto industry will face the biggest slowdown of demand in history.
Just last week, the European Central Bank (ECB) announced its plans for a large €750 billion asset purchases to calm the markets. Meanwhile, European leaders are increasingly worried about increasing debt as the region grapples with Coronavirus, which is affecting many countries in the region.
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DAX index is set to open at about €9,833 using information in the futures market. On the four-hour chart, we see that the index has been rising in the past few days, and is now above the 78.6% Fibonacci Retracement level. I expect the index to decline a few minutes after open and then rally, as it tries to test the 61.8% Fibonacci Retracement level at €10,400. As you can see, the momentum indicator seems supportive of this idea.