DAX: Volkswagen to Close Plants in Germany, Increasing Slowdown Fears

Poorer than expected economic data and plans to downsize Germany’s largest automaker takeover investor concern.

Volkswagen has outlined plans to close factories in Germany for the first time in its history. The CFO Arno Antlitz outlined the company’s plans to its employees at the VW HQ in Wolfsburg yesterday.

The company has an excess production of around 500 thousand vehicles, the equivalent of 2 plants. The automaker forecasts that over the next years sales will continue to be lower by 500 thousand.

The company says it has one maybe two years to adapt to the new situation. The announced plans will probably meet stiff opposition from local workers and the political establishment. The CFO also mentioned that the company doesn’t see demand in Europe returning to pre-Covid levels.

The shift in demand is seen as coming from a transition to electric vehicles. Where Tesla and dedicated Chinese EV makers are meeting most of the demand.

Construction PMI showed a greater than expected decline to 38.9 from 40 last month. The latest data adds to a string of poor results over the last quarter, including 6 consecutive quarters of declining GDP YoY growth.

Technical View

The day chart above for the DAX shows a market entering a bullish trend, with the last 9 candles above the Ichimoku cloud. The last 2 candles have found support on a previous all-time high of 18,601 (black line).

The market will find further support, just below the black line, on the neckline (grey diagonal) of the head-and-shoulders pattern. Should the market break that level, the next support is on the cloud, which also coincides with a support level of 17,939 (green line).

Technically, the new all-time-high set by the close on September 2 would confirm a bullish trend. However, the close was only marginally higher than the previous ATH. Looking at the RSI, we see that the new ATH coincided with the failure of the indicator to break above 70.

A break above 70 would have indicated that the rally had strong momentum, and we would have expected new highs. Failure to break above 70 indicates there may be more room to the downside for new lows.