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DAX - German Stocks try to Stabilize
04.07.2022

The DAX saw mixed movement during today’s European Session with both an attempted bullish and bearish trend, so far we have not seen an impulse waveform and hold. Today the US stock market is closed for Independence Day and economists were eager to see if European stocks would perform better while other markets were closed.

In the second quarter of 2022, the German index lost 17% which is actually its worst performance since the banking crisis 15 years ago. The price action over the past month has declined by 12.55% and the price today is at a slight decline measuring 0.19%. The price so far has not been able to form enough bullish movement to form anything more than a minor retracement in the larger trend. The price over the past month has only continued to form lower lows and lower highs. Traders are now looking to see if the asset is able to break through the latest and lowest support level of 12,616.

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The DAX is not the only stock-based index to have witnessed declines; the CAC has also declined by 8.5% and the Spanish IBEX has declined by 6.92%. The downtrend in European stock is largely a domino effect of analysts' fears about a possible recession as a result of the continued rise in inflation both in Germany and in the EU as a whole. In addition to this, the Eurozone is also predicted to gradually increase interest rates which again can potentially lower investment appetite. Inflation in the Eurozone for June rose to 8.6% from 8.1% a month earlier, however, analysts have advised that inflation is mainly related to fuel costs.

The bond market, in turn, is experiencing mixed results similar to the bond market in the US over the past week. Since the middle of last month, a downward correction has continued and the yield on popularly followed 10-year German bonds fell to 1.2265% from 1.7620% at the end of June, and the yield rate on global 20-year government bonds declined to 1.515%. The fact that both bond yields and the stock market have simultaneously declined has worried investors and has further indicated individuals are readying for a recession.

Lastly, investors are slightly more cautious in the EU due to the geographical, political and economic connections between the region, Ukraine and Russia. The EU has continued to look at ways to lower dependency on Russian Oil and Gas. Over the past week, there had even been reports that Russia may cut gas to the EU. Both outcomes would have a drastic impact on the German economy as well as the stock market.

The growth leaders in the index are RWE AG which increased by 5.25%, Zalando by 4.77%, Airbus Group by 3.00% and Sartorius AG by 2.94%. The largest price declines are being seen with Infineon Technologies AG which declined by 3.47%, Deutsche Börse AG by 3.23% and Deutsche Bank AG which declined by 3.19%.

Over the coming days, investors are likely to be monitoring the regional PMI figures being released tomorrow, the economic outlook report scheduled for Wednesday as well as comments made by the European Central Bank.

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