DAX Falls on Earnings and Looming German Election
The DAX fell 0.53% on Thursday, February 20, following Wednesday’s 1.80% plunge to close the session at 22,315.
Corporate earnings, US tariff jitters, and uncertainty surrounding Germany’s weekend election weighed on sentiment.
Sector Highlights: Autos and Aerospace Stocks Slide
Aerospace and auto stocks weighed on the DAX. MTU Aero Engines AG slid by 4.65%, while Airbus SE fell 2.27% after warning about near-term production challenges and A350 freighter delays.
Auto stocks also faced selling pressure after Mercedes-Benz Group reported a profit slump and slashed its dividend. The stock slid by 2.53%, while BMW and Porsche posted modest losses.
German Producer Prices Signal Softer Inflation Outlook
Producer prices increased by 0.5% year-on-year in January, down from 0.8% in December. Economists consider producer prices a leading inflation indicator, as lower producer costs can lead to cheaper consumer goods.
A weaker inflation outlook may support a more dovish ECB rate path, boosting demand for rate-sensitive German stocks. However, disappointing earnings, US-EU trade tensions, and German election uncertainty overshadowed the data.
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Private Sector PMIs in Focus
On Friday, February 21, Germany’s private sector PMIs will take center stage. Economists forecast the HCOB Manufacturing PMI to rise slightly to 45.5 in February, up from 45.0 in January, while expecting the Services PMI to hold steady at 52.5.
Higher-than-expected PMI numbers could signal a shift, but employment and price trends will be key.
- Weaker employment and lower prices may reinforce ECB rate cut expectations, supporting stocks.
- Higher employment and rising prices could dampen rate cut bets, weighing on risk assets.
Expert Views on the EU Economy
Former Pimco CEO/CIO underscored the EU’s growing list of current challenges, stating:
“This is a testing time for Europe, economically, politically, and geopolitically. To remain a significant global player, it must adapt, reform, and unite. The longer it takes to do so, the more Europe risks not only falling behind but also ceding even more influence and relevance in several important areas.”
Germany’s elections on February 23 could be a key moment for the DAX. While the Christian Democratic Union (CDU) and Christian Social Union (CSU) lead the polls, anything can happen on election day. This uncertainty could test demand for DAX-listed stocks on February 21.
US Jobless Claims Signal Steady Labor Market
Meanwhile, US labor market data weakened Fed rate cut bets for H1 2025. Initial jobless claims increased to 219k (week ending February 15), up slightly from 214K (week ending February 8). A tight labor market may support wage growth and consumer spending, fueling demand-driven inflation.
A higher-for-longer Fed rate stance could pressure risk assets, countering any dovish ECB tailwinds.
US Markets Retreat as Tariff Jitters Resurface
On Thursday, February 20, US equity markets ended the session in negative territory amid renewed concerns about US tariffs. The Dow dropped by 1.01%, while the Nasdaq Composite Index and the S&P 500 saw losses of 0.47% and 0.43%, respectively.
Trump’s plans for sweeping tariffs on autos, chips, and pharmaceuticals raised concerns about inflation, reinforced by Wednesday’s FOMC Meeting Minutes.
Meanwhile, Walmart (WMT) plunged 6.55% after weaker-than-expected revenue, impacting sentiment toward the consumer sector.
Key Focus: US Services PMI in Focus
On Friday, February 21, the US services sector will be in focus. Economists forecast the S&P Global Services PMI to increase from 52.9 in January to 53.0 in February.
A higher PMI reading could further weigh on Fed rate cut expectations, potentially impacting risk assets. However, employment and price trends will also draw interest. Faster job creation and rising prices would signal a higher inflation outlook, potentially sinking bets on an H1 2025 Fed rate cut.
Conversely, a lower PMI, weaker employment, and softer prices may revive expectations of a near-term Fed move.
Near-Term Outlook
The DAX’s direction hinges on the private sector PMIs and central bank guidance.
- Weaker PMI readings and dovish central bank signals could push the DAX toward 22,500.
- Strong PMIs and a hawkish Fed may drag the Index toward 22,000.
US trade policies and geopolitical tensions remain critical risk drivers. Rising US-EU tensions could affect demand for export-driven German stocks. However, any positive trade developments could support further DAX gains.
As of Friday morning, futures indicated a cautious start ahead of the German elections and crucial data. DAX futures fell 25 points, while the Nasdaq 100 mini dropped 2 points.
DAX Technical Indicators
Daily Chart
Despite this week’s retreat, the DAX remains well above the 50-day and 200-day Exponential Moving Averages (EMAs). Despite holding above key moving averages, increased volatility signals potential short-term downside risks within the broader uptrend.
A return to 22,500 could signal a move toward the February 19 record high of 22,935. A breakout from 22,935 may enable the bulls to target 23,000 next.
Conversely, if the DAX drops below 22,150, the bears could target the 22,000 level next.
With the 14-day Relative Strength Index (RSI) at 63.05, the DAX may climb to the record high of 22,935 before entering overbought territory (RSI higher than 70).
Conclusion: Key Drivers to Watch
Traders should closely monitor:
- Private sector PMI data.
- ECB and Fed commentary.
- Germany’s election, US trade policy, and geopolitical risks.
Access our latest analysis here for a deeper dive into how global market dynamics influence the DAX.
