DAX Continues Rally Despite Weak Data and Sluggish Economy
The GfK and NIM published consumer sentiment data that showed a weak but improving outlook.
The GfK and NIM published consumer sentiment data that showed a weak but improving outlook.
The sentiment index published by GfK and the Nuremberg Institute for Market Decisions (NIM) showed a slight increase from -21 to -18.3. The rise was greater than analysts’ forecasts of an increase to -20.5.
The reading is at its highest level since Aprill 2022, a show of how consumer sentiment is lagging the stock market. Since April 2022 the DAX has gained 36.5%, while consumer sentiment has languished.
The divergence in the two indices could be down to the expanding balance of trade. Many of the stocks that make up the DAX are heavy exporters. The monthly trade balance expanded from €3.58 billion in April 2022 to its peak of €26.8 billion in January 2024.
The expansion in international trade has made up for lack of domestic demand. The revenues generated from exports propelled the DAX to new all-time highs. Whereas the GDP has been sluggish to contracting.
The last Q2 2024 GDP Growth showed a contraction of 0.1% and forecasts for the Flash Q3 2024 are for another contraction of 0.1%. If the reading for Q3 is confirmed the German economy would officially be in depression.
Technical View
The weekly chart above for the DAX shows a market in a bullish trend that is recovering from a correction. The push above the Ichimoku cloud that happened in January 2023 gave way to a major bullish momentum.
The dips that happened in October 2023 and August 2024 failed to lead prices below the cloud. These corrections tested major support levels and the failure to break them gave the market renewed strength.
However, a sign of weakness is beginning to appear as the recent new highs have not coincided with major momentum. From the RSI, in the lower pane, we can see that the indicator failed to get anywhere near the level of 70.
Breaks above that level indicate a strong momentum, such as the rally from February this year that coincided with an RSI above 70. That rally then extended with 6 consecutive green candles, before the market retraced and consolidated.
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