Dax underperforms in the face of German companies’ difficulties
Recent data from Germany indicates growing concerns about the outlook and the faltering economic rebound.
The latest German IFO index fell for a second consecutive month in August and more than expected in August to 99.4. This was below the expected level of 100.4 and down from July’s 100.8. While the current assessment has in fact improved, IFO’s expectations have seen the biggest drop since the start of the pandemic.
The data follows weaker-than-expected German manufacturing PMIs at the start of the week. As Germany’s manufacturing and service sectors expanded in August, the PMI manufacturing index registered a notable decline, falling to a 7-month low of 62.7 in August, from 65.9 in July. Activity in the service sector slowed less to 61.5 from 61.8.
So what does all this mean?
The figures suggest that Germany’s economic recovery from the pandemic is starting to slow. While the IFO numbers bode well for growth this quarter, the outlook for the coming quarter is weaker. The slowdown appears to be due to growing concerns about the delta variant and supply chain issues amid the global chip shortage. However, recent flooding in Germany and uncertain political outlook could make the situation worse.
Looking ahead, any gain in Dax could be limited by political uncertainty as attention turns to Germany’s first election in 15 years without Chancellor Angela Merkel. The latest polls show that the SPD has overtaken Merkel’s CDU party for the first time in a decade and a half.
What next step for the Dax?
Dax’s rebound from 50 sma has started to slow down to less than 16,000 at the moment. The index has risen throughout the year with the uptrend intact, so it makes sense that we could see another test of 16,000 soon. A break above this level would be a bullish signal and could push the price up to new all-time highs. However, it is worth highlighting the bearish divergence on the RSI which suggests that momentum is slowing down.
On the negative side, the 50 sma has acted as a strong support throughout the year. A close below the 50 sma at 15675 would be significant and could open the door to 15,000 July low before sellers turn to the 200 sma at 14700.