DAX Index Fundamental Analysis – week of July 10, 2017

The DAX index had a tight ranging week full of consolidation just below the broken support that comes in at around the 12550 region and so far, the bears are clearly in control as evidenced by the fact that the index has not even been able to make a visit to the region of broken support over the past week or so. This is similar to the major stock markets all around the world which have been facing some difficult times during this period.

DAX Likely to Remain Weak

It is ironical that the DAX and the other stock markets, especially in Europe, have been unable to progress much despite the fact that the economic data from these countries have been pretty strong. Germany, for one, has always been known to throw up strong economic data as it has a very stable economy that is anchored in manufacturing and under normal circumstances, the good data should have lead to a progression in the stock index. But this has not been happening during this period. Even last week, we had some strong PMI data from Germany and though this pushed the index higher, it lasted only for a day and the bulls could not make any kind of dent on the bear control of the index.

The main reason for the stock markets in Europe is the fact that the ECB seems ever closer tapering. This much was clear from the ECB minutes that was released last week where it showed that the members chose to delay serious discussion on tapering till the inflation data achieved its targets. This tapering would mean lesser funds being pumped into the stock markets and that is why we are seeing the investors pull out. It also means that the currency and the yields are going to get stronger, which gives all the more reason for the investors to push their funds into higher yielding assets and pull them out from more risky assets like stocks.

Looking ahead to the coming week, we do not have any major economic news from Germany but we believe that this weakness in the DAX is likely to continue in the short term as the markets come to terms with this news of tapering from the ECB.