The DAX index is set to open lower today as investors react to the rising possibility of a double recession in Germany. Futures tied to the index are trading at €12,386, which is the lowest it has been since September 25.
Germany Covid-19 cases continue rising
The biggest concern for German stocks and the DAX index is the rising number of coronavirus cases in Germany and other European countries. On Saturday, the country confirmed more than 14,000 new cases. And yesterday, it confirmed more than 11,000, bringing the total number of infections to more than 438k. Deaths have crossed 10,000.
As the cold winter season starts, many experts believe that the country will see more cases. While the government has already announced strict rules to prevent the spread, the chief health office has warned that the worse could come. He said that the country will be forced to implement a full-scale lockdown will come if the daily cases rise to above 20,000.
Most companies in the DAX index do a lot of business in Europe. As such, the index is also falling because the number of cases is rising across the continent. Most countries like France, Spain, and Italy have responded by announcing strict measures as well.
The rising cases is bad for the DAX in two ways. First, many companies could be forced to close their operations again to halt the disease. Second, in case of a lockdowns, there could be low demand for most products.
SAP earnings disappoint
Meanwhile, the DAX index is falling because of SAP, the giant technology company. The company reported disappointed earnings, with revenue falling by 4% to 6.54 billion euros. Its operating profit also fell by 1% to 2.07 billion euros.
The decline was offset by a 10% increase in cloud computing revenue. Worse, the firm also downgraded its revenue and earnings forecast. It expects to have an operating profit of 8.5 billion euros, down from the previous 8.7 billion euros.
SAP share price is down by more than 20%.
DAX index technical outlook
On Friday, the DAX index rose by 0.82% and ended the day at €12,645. Today, futures tied to the index gapped lower and reached a low of €12,339. As it dropped, it moved below the important support of €12,535. On the hourly chart, this price was along the first support of the standard pivot points. It is also below the 15-day and 25-day exponential moving averages.
Therefore, I suspect that the price will continue falling as bears target the next support at €12,000. Alternatively, a move above the resistance at €12,535 will invalidate this trend.
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