German stocks rose today as the market continued to focus on the reopening of the economy and the Lufthansa bailout. The DAX index, which is the German equivalent to Dow Jones, rose by more than 62 basis points today.
Lufthansa share price push the DAX higher
The German government agreed to a $9.8 billion bailout of Lufthansa Airlines in a landmark deal announced yesterday. The government will in turn take a controlling stake of the airline. The bailout funds were more than the company’s total market capitalization.
Lufthansa, and other airlines have been on a freefall this year. The shares have dropped by more than 44%, making it the worst-performing stock in the DAX index. Other weak performers this year have been MTU Aero, Daimler, BMW, and BASF.
The company has been losing millions of dollars every week because very minimal flying has been happening. As a result, Lufthansa agreed to furlough most of its staff and also retire a substantial number of its planes.
The decision by the German government was strategic. That is because if it let Lufthansa fail, it would have opened an opportunity for American airlines like American and United to take a substantial market share. The American companies have received funding worth more than $60 billion.
Best and worst-performers in the DAX index
The worst-performer in the DAX index today was Bayer, the chemicals company. The stock dropped by more than 1.41% as investors took the profit made yesterday. The stock also dropped as it became apparent that the deal reached yesterday will not end Monsanto’s headache. According to Bloomberg, the next challenge will be from investors, who wonder whether Bayer made the right call in combining with Monsanto. Shares of Wirecard, Fresenius, Merk and Linde were other laggards in the DAX index.
Other than Lufthansa, other big winners in the index were MTU Aero, Deutsche Bank, Muench Rueckvers, Continental, and Adidas.
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DAX Index technical outlook
The DAX index is trading at €11,480, which is significantly higher than the March low of €7,950. On the daily chart, the price successfully moved above the 100-day EMA of €11,300. It is also slightly below the 61.8% Fibonacci retracement level of €11,593. Therefore, the upward trend will continue so long as the price remains above the 100-day EMA of €11,300. The next target will be €11,593.
On the flip side, a move below the 50% retracement of €10,888 will invalidate this trend. The movement will mean that there are still bears in the market, who will be keen to push it to below €10,500.
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