DAX Boosted by China Stimulus Hopes, ECB Loosening
DAX rallies to a new all-time high on Monday fueled by news from China of an extension in stimulus.
- China hints at more stimulus for 2025
- Investors bet on at least 25 basis point cut on Thursday
- Technicals show possible overbought scenario
China Set to Extend Stimulus Policies
The DAX rallied 0.3% Monday morning to set a new ATH for the sixth consecutive trading session in a row. The momentum was bolstered by news from China that stimulus policies would extend into 2025.
China’s growth has been weaker than expected as the property market crisis took its toll on confidence and consumption. Many companies listed on the DAX are large exporters to China, and a fall in demand from one of Germany’s largest trading partners has caused concern.
Today’s statement from the politburo meeting said that the government would continue to support the economy, highlighting:
- moderately loose monetary policy
- stabilize stock and property markets
- vigorously boost consumption and expand domestic demand
The DAX would benefit greatly from an expansion in domestic demand and even more so if the euro stays at these current low levels.
DAX Live Chart
Hopes Rise on ECB Bumper Cut
The markets have already priced in a cut of 25 basis points for the meeting on Thursday. However, sentiment is growing that we may even get a bumper 50 basis point reduction in rates.
Analysts are also making the case that the monetary policy loosening is nowhere near over. They are now expecting rate cuts to continue into 2025 Q1. The cuts would be justified by a weakening GDP growth, especially Germany, and declining inflation.
The DAX needs lower rates to boost the attractiveness of stocks. And for the first time since I can remember the ECB is in front of the Fed on the loosening curve.
This leadership will mean the euro remains weak. The USD/EUR is down 5.6% since its highs in September. Germany is a net exporter, so a weaker euro will boost exports and corporate revenues.
DAX Day Chart
Technical View
The day chart above for the DAX shows a market in a strong bullish trend, with price above the Ichimoku cloud. However, some signs of an overbought market are present on the chart.
Th cloud acts as a market anchor, and the further away from the cloud the candles go, the greater the likelihood of a correction. In previous rallies to new ATHs, the market correct when between 1,000 and 1,500 points away from the cloud.
The market reached a distance of 1,100 points when it printed the last record high today. On the bullish side, the RSI is above the level of 70, indicating a strong momentum. As long as the indicator remains above 70 there could be more room for more highs.
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