The DAX index is wavering today as investors continue to worry about the emerging second wave of the virus. The market is also focusing on transatlantic risks after the US abandoned a meeting set to address digital taxes. The DAX is up by only 20 basis points today.
Second wave coronavirus risks
Throughout the week, investors have been focusing on risks of a second wave of coronavirus illness. This is after China reported a new cluster of infections in Beijing, the country’s biggest city. Since then, the country has confirmed more than 130 new infections and started large scale testing to eliminate the illness. Similarly, in the United States, the number of cases has continued to rise in key states like Florida and Oklahoma.
While the number of new infections in Germany has continued to fall, infections in the United States and China pose risks to companies in the DAX index. This is because the US and China are the biggest markets for companies like Daimler, Volkswagen, and BMW.
Tax issues remain
The DAX index is also wavering because of the growing risks between the United States and the European Union. This is after Steve Mnuchin sent a letter to finance ministers in France, Italy, Spain, and UK saying that the US was withdrawing from digital tax talks. The countries have been negotiating on how to tax digital companies. The US has been concerned that these talks target leading American companies like Amazon and Google.
In a statement today, France finance minister, Bruno Le Maire said that the country will implement a digital tax in 2020 according to the law. This risks a new trade war between the two countries.
DAX index reacts to Merkel calls for EU funding
The DAX index also reacted to calls for EU countries to pass the funds that were proposed by the European Commission a few weeks ago. She said:
“Solidarity and cohesion in Europe have never been more important. No country can survive this crisis alone and isolated. Our common goal will have to be to master this crisis together, sustainably and with a view to the future.”
This means that the funds could be released before the summer break.
DAX key performers
Most companies in the DAX index were in the green today. The best performer is Infineon, Daimler, BASF, Heidelbergcement, and Covestro, whose shares have risen by more than 1%. On the other hand, the worst performers are Wirecard, Henkel, MTU Aero, and Fresenius.
On the daily chart, we see that the DAX index is attempting to clinch the third straight day of gains. The price is inches below the 78.6% Fibonacci retracement level and is also above the 50-day and 100-day exponential moving averages. Also, the price is a few points below last week’s high of 12,921. This means that a close above Tuesday’s high of 12,442 will see the index continue rallying.
On the flip side, a move below the important resistance at 11,6888 will invalidate this trend. This price is along the 61.8% retracement level and slightly above the 50-day and 100-day EMA.