DAX Declines, Fears of Economic Contraction Increase

The Unpopular Sholtz government slashes GDP growth forecasts the same day Deutsche Telekom announces share buyback.

The German government following the statement made yesterday by the Economy Ministry, has reduced its GDP forecast for 2024 to -0.3% from +0.2%. The announcement comes amid concerns about demand for German goods from China and global contraction.

The effects of the recent Fed rate cut, and the even more recent China stimulus package have both faded. Volkswagen recently announced the closure of two plants in Germany. And Intel put an important project in Germany on hold.

Some good news today comes from the largest German cell phone provider, Deutsche Telekom. The company announced that it will pursue a share buyback program worth €2 billion for 2025. Telekom announced it expected the group to increase net revenue by 4% a year through 2027.

The company’s management also plans to increase its dividends payout for this year to €0.90. At the same time, the dividend corridor will remain between 40% and 60% of adjusted earnings per share.

Deutsche Telekom shares are up 1.2% on the day, while the DAX is down 0.42% following a broad retracement in global stocks. In contrast, the Shanghai index is up 1.46% as it recovers from the recent selloff.

Technical View

The day chart above for the DAX shows a market that is still technically in a bullish trend. The market is above the Ichimoku cloud, and the lagging lines are above the cloud and indicating bullish momentum.

A cause for concern of the strength of the bullish trend comes from the RSI. The indicator dipped below its MA 6 sessions ago, which is a sign of momentum weakness. The second suggestion of weakness comes from the fact that in the last two rallies the RSI failed to break above the level of 70.

The market will find support immediately at 19,057 (red line) and if that breaks, further down at 18,785 (blue line). To the upside, the market will find major resistance at the all-time high of 19,501.

ABOUT THE AUTHOR See More

Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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