DAX index futures lagged other European indices as investors waited for more details on a government stimulus package. As at 0700 GMT, the futures were up by just 0.50% while the CAC and FTSE were up by more than 8% and 1.50% respectively.
According to Reuters, the German government is mulling a stimulus package that will help the beleaguered economy. On Monday, the cabinet agreed on a rescue package worth more than $810 billion. According to the Economy Minister, the final number could be significantly higher than that. The proposed German rescue package will include €156 billion, which will finance social spending. €600 billion will be provided to companies as loans and guarantees. Also, the state-run bank, KfW, has about €500 billion to boost liquidity.
The German economy, which relies mostly on the industrial sector, could be significantly vulnerable. Indeed, the auto industry, which brings billions of euros every year, has halted. Even with the stimulus, analysts expect the sector to witness a period of slow growth.
Just yesterday, data from Markit showed how the country had been affected. The composite PMI, which gauges activities in the manufacturing and services sectors, declined to a record low of 37.2. Services and manufacturing PMI dropped to 34.5 and 45.7, respectively.
The DAX index will gain about 80 points when it opens. This price will be above the range I identified in my report yesterday. On the daily chart, we see that the RSI has emerged from the oversold level below 30. The likely scenario is where the index attempts to test the crucial psychologically-important resistance level of €10,000. A move above €10,000 will potentially see the index test the 61.8% Fibonacci Retracement level at €10,400.