Dax trades lower after a hat-trick of disappointing data
Fiona Cincotta August 26, 2021 4:21 PM
German economic data across the week has disappointed and points to the German economic recovery losing momentum.
Data from Germany suggests the economic rebound is losing momentum
The latest German GFK consumer confidence figures revealed that the mood amount consumers has darkened amid rising covid concerns and higher inflation. The GFK forward looking index declined by a more than forecast -1.2 points in September, down from -0.4 in August and worse than the -0.7 points forecast.
Today’s figures come following disappointing business sentiment data yesterday. The German IFO index declined for a second straight month in August and by more than forecast to August to 99.4. This was below the 100.4 level forecast and down from 100.8 in July. Whilst the current assessment actually improved, IFO expectations saw the largest drop since the pandemic started.
Making it a hattrick of weaker numbers, the German manufacturing PMI at the start of the week also surprised to the downside. Whilst both the German manufacturing and service sector expanded in August, the manufacturing PMI was the notable decliner dropping to a 7 month low of 62.7, down from 65.9 in July. Activity in the service sector slowed less ticking lower to 61.5, down from 61.8.
So, what does this all mean?
The data suggests that the German economic recovery from the pandemic is starting to slow. Whilst the IFO numbers bode well for growth this quarter, the outlook for the coming quarter is weaker. The loss of momentum comes as the Robert Koch Institute warned that Germany’s fourth covid wave had clearly begun. Political uncertainty ahead of the German elections and supply chain issues amid the ongoing global chip shortage are adding to headwinds for the German economy
Looking ahead any gains in the Dax could be capped by political uncertainty as attention shifts to the first German elections in 15 years without Chancellor Angela Merkel. The latest polls show that the SPD have overtaken Merkel’s CDU party for the first time in a decade and a half.
It’s also worth mentioning that next month the Dax 30 will become the Dax 40, with 10 additional companies joining. This is an important change which will make the German benchmark index more representative of the economy
Where next for the Dax?
The Dax once again found support on the 50 sma in early trade at 15675. The 50 sma has proved to be an important across the run up this year. The index is grinding higher with the bullish trend intact so it makes sense that we could see another test of 16000 soon. A break above this level would be a bullish signal and could boost the price fresh all-time highs. However, it is worth pointing out the bearish divergence on the RSI which suggests that momentum is slowing.
On the downside side, a close below the 50 sma at 15675 would be significant and could open the door to 15000 the July low before sellers look towards the 200 sma at 14700.
How to trade with City Index
Follow these easy steps to start trading with City Index today:
- Open a City Index account, or log-in if you’re already a customer.
- Search for the market you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels
- Place the trade.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.