FTSE 100

DAX Index: Here’s Why German stocks have just been punched in the face

The DAX index is down by more than 157 points as at 7:00 GMT today as traders eye corporate earnings from the United States. The index is trading at €12,630, which is slightly above the yesterday’s low of €12,563. The DAX is not the only major European index that is lagging. In France, the CAC 40 is down by 1.40% while in the UK, the FTSE 100 is down by 0.85%.

German stocks fall ahead of bank earnings

The biggest driver to the decline of the DAX index is the upcoming earning season in the United States. Today, banks like Wells Fargo, Citigroup, and JP Morgan will release their earnings. They will be followed by companies like IBM, Goldman Sachs, and Morgan Stanley that will release their earnings this week.

Analysts are a bit pessimistic about this earning season because of the lockdowns that were there in most part of the quarter. However, banks could surprise Wall Street because of their trading operations and commissions got from the government’s stimulus package.

According to FactSet, analysts are predicting a 44.6% decline of S&P earnings in the second quarter. If that happens, it will be one of the worst quarter’s in corporate history. The earnings fell by 15.6% in the first quarter.

While no company in the DAX index will report this week, analysts will use performance in the US as a gauge of what to expect.

US states reinstate lockdowns

The DAX index is also falling because of the dire situation in the United States where the number of coronavirus cases is rising. Officials confirmed more than 57,000 new cases yesterday and some states have started to impose lockdowns. For example, California and Oregon have reinstated lockdowns in some parts.

These lockdowns are negative for companies in the DAX index because most of them sell a lot of products to the United States. For example, companies like Daimler, Volkswagen, and Adidas have the US as their biggest foreign markets.

Top movers in the DAX index

All companies in the DAX index are in the red today. The biggest decliners are Infineon, SAP, Merck, Adidas, and Deutsche Boerse. These stocks have fallen by more than 1%. On the other hand, the best-performers are Vonovia, E. ON, Deutsche Telekom, and Deutsche Bank.

DAX Index technical analysis

On the daily chart, the DAX index is trading above the 100-day and 50-day EMAs. The price is also above the ascending trend line that is shown in black. It is also forming an ascending triangle pattern. Also, the price is along the 78.6% Fibonacci retracement level.

Therefore, I expect the index to continue rising so long as it remains above this trend line. If it does, bulls will attempt to test the next resistance level at €12,932.

On the flip side, a move below €12,400 will signal that bears are taking over. This price is below the ascending trend and is also an important psychological level.

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