Market Analysis

DAX 30: Dragged down by Italian budget woes

On the table, weighing on the DAX 30 is the Italian budget, which is not showing any signs of a last-minute agreement between Italy and the European Union (EU) on the budget front. Today the deadline for Rome to re-submit its fiscal plan approaches. An early talk about a meeting to discuss the draft involving PM Conte and Deputies Di Maio and Salvini did not materialise, at least officially.

The preliminary consumer price index (CPI) in Germany rose to 2.5% year-on-year in October compared to the 2.3% registered in September and exceeding analysts’ estimates of 2.4%. It is the highest CPI since September 2008 as prices of services and energy point to an increase at a faster pace. The CPI is the main indicator to measure inflation and changes in purchasing trends. A low reading is regarded as positive for a stronger labour market, consumers have more money to buy goods and services, resulting in the German economy registering positive growth.

The German trade balance took a hit and the surplus fell to EUR 18.4 billion in September, compared to EUR 24.2 billion registered in the same month a year earlier, as imports rose by 5.3% to EUR 90.7 billion, while exports fell 1.2% to EUR 109.1 billion. The increasing worldwide protectionism and risks such as the upcoming Brexit have weighed on the German trade balance.

Since the beginning of 2018 until last Monday close, the German index is underwater with over 12.5% loss and since the start of November DAX 30, lost its grip resulting in more than a 1.0% drop. Nonetheless, the week began on the left foot with a dive of over 2.0% and on the daily basis closed red with a 2.35% loss. Furthermore, the index remains in a bearish phase since late August.

On yesterday session, the DAX 30 opened with a 0.30% gap up that encountered the ferocious sellers that pushed the price down with a wide range and closed near the low of the daily range, in addition, managed to close below Friday low, which suggests a strong bearish momentum.

The stochastic is showing a strong bearish momentum and crossed below the overbought zone, however, is still above the 50 midline.

The German index had the worst month since the beginning of the year in October where it even managed to make a new year-to-date low at 11,038.5. The sharp and fast drop in October woke up the hibernating bears that stunned the bulls. The recent upward move made in late October, early November seems to be just some profit taking by initial bears. For a deeper upward correction, the market should develop a double bottom near the year-to-date low at 11,038.5 and break the neckline at 11,647, which would project a target toward 12,233.5. The price developed a bearish engulfing pattern yesterday. A bearish engulfing pattern is seen as the end of the upward correction, marked by the primary candle of upward momentum being overtaken, or engulfed, by a larger secondary candle indicating a shift toward a downtrend.


DAX 30: Dragged down by Italian budget

Ger30 Dec ’18 Daily Candlestick Chart


Watch out this Week:

 On Tuesday, November 13 at 07:00 GMT (02:00 AM ET) the Statistisches Bundesamt Deutschland is scheduled to release Germanys’ final consumer price index (CPI) year-on-year in October which is expected by market analysts to come in line with the preliminary estimates of 2.5%.

On the same day at 10:00 GMT (05:00 AM ET) the Zentrum für Europäische Wirtschaftsforschung is scheduled to release the economic sentiment in November which is expected by market analysts to drop to -25.0 comparing to the -24.7 registered in the previous month. An optimistic view is considered as positive for the index, whereas a pessimistic view is considered negative.

On Wednesday, November 14 at 07:00 GMT (02:00 AM ET) the Statistisches Bundesamt Deutschland is scheduled to release the preliminary gross domestic product (GDP) year-on-year in the third quarter, which is expected by market analysts to fall to 1.2%, comparing to the 2.3% registered in the previous period. The GDP is considered as a broad measure of the German economic activity and health. A high reading or a better than expected number has a positive effect on the index, while a falling trend is seen as negative.


Written by Hugo O’Neill, External Analyst


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