DAX Sets New All-Time High After Fed Bumper Rate Cut – Auto-Makers Suffer

Global markets got a boost from the 50-basis point Fed rate cut on Wednesday, while today’s major auto-maker news sinks the market.

The DAX also benefited from the Fed’s easing policy after 4 years of monetary tightening. The index set a new all-time high yesterday of 19,050. The aggressive stance from the Fed should help the ECB act on interest rates through 2024.

The market considers the move from the Fed as making a soft landing for the economy more likely. That might transfer to the Eurozone if the ECB follows suit at its next meeting in October. However, today the German stock market got some negative news regarding its auto industry.

Recently we saw Volkswagen and BMW cuts its forecasts for 2024, with Volkswagen anticipating the possibility of closing two plants in Germany. Plants closures in the Auto industry would be a historical first for Volkswagen, underlying the automaker’s dire outlook for the near future.

Today, Mercedes Benz also cut its full-year profit margin estimates for 2024, for the second time in 2 months. The company stated the decline in demand from China for its products as the main cause of the new forecast.

Shares tumbled by 8.4% at one point from yesterday’s close, or from €59.01 to €54.05. The sharp decline led the European auto sector lower, and helped contribute to the selloff across the board, with the DAX down 0.64% on the day.

Technical View

The day chart above for the DAX shows a market that is in a bullish trend, with prices well above the Ichimoku cloud. Yesterday’s candle also set a new all-time high, which confirms the bullish momentum.

However, we see that the new ATH happened with low momentum, as indicated by the RSI, which didn’t cross above 70. The previous ATH also occurred on low momentum, where the RSI failed to break above 70.

The next resistance is at the ATH of 19,050 (red line), while the market will find the nearest support at the previous high of 18,785 (blue line). Should that break the market will find further support at 18,601 (black line), which coincides with a previous high.