DAX Fundamental Analysis – week of January 23, 2017

The DAX continued to consolidate and trade in a tight range for the most part of last week. We have been seeing over the past 3 weeks that the index continues to trade near the highs of its range. The corrections have been few and far between and any sort of correction has been quickly met with some strong buying keeping the index buoyant. But it has to be said that if there is any country in Europe that deserves to have a strong stock market, it has to be Germany. The bourses in every country are a reflection of the economic strength of the country and the German economy has, by far, been the strongest economy in the Eurozone for quite some time. Its foundations in manufacturing are strong and it continues to throw up strong, stable data month in and month out and it is led by a strong leader who has been at the helm for several years now.

That leader, Merkel, would be challenged this year as the elections are to be held in the middle of this year and it is believed that she is likely to face her strongest challenge yet from some upstarts and right-wing parties. The world is in a period where the abnormal is considered as the normal and hence, nothing can be ruled out as far as the election results go. This could present a huge challenge to the DAX and the economy in general but that is still few months away. We saw the DAX make a correction last week to cover the gap from the beginning of the year but the bears could not take control and the index has bounced back to begin the next leg of the bull run. The risks have increased around the world with the attention focussed on the new Trump administration and this has caused the US stock markets to correct but the DAX has managed to hold up so far.

Looking ahead to the coming week, there is no specific economic news from Germany but we have some risk events like the UK SC Court ruling on its EU membership which could have an impact. Plus, all eyes will continue to be on the new administration in US and what they say and do as the market continues to be jittery about their intentions and it is likely to take some time for it to settle down. Hence, we expect some more consolidation and ranging in the coming week in the DAX.