DAX Index Nears 18,900: Strong Performance Despite Weak German Economic Data

Despite Germany’s worsening economic outlook, as evidenced by a disappointing IFO Business Climate Index, the DAX Index continues to show remarkable strength.

The index recently touched an intra-day high of 19,036, nearing record highs, as investors remain optimistic about monetary easing from major central banks.

Automotive stocks have played a pivotal role in this rally, with BMW and Porsche seeing gains of over 3%, signaling positive investor sentiment. Moreover, supportive global monetary policies—such as interest rate cuts by the U.S. Federal Reserve and the People’s Bank of China—have further fueled this upward momentum, allowing the DAX to rise despite the underlying economic challenges Germany faces.

The German DAX stock index is rising and rising, while the economy is struggling and there are no signs of recovery yet. The ifo-index of economic expectations remains stubbornly in recession territory, while the stock market is euphoric. The reasons for the German stock market's… pic.twitter.com/h5gXqEISD2

— Kaufmann Hans (@KaufmannHans5) September 25, 2024

German Business Climate Deteriorates, But DAX Remains Resilient

The IFO Business Climate Index fell to 85.4 in September, reflecting declining business confidence in Germany. This drop, driven by weaknesses in the manufacturing sector, is the lowest reading since June 2020. These concerning numbers suggest that companies are preparing for tougher economic times, with weaker profits and reduced investments.

Yet, the DAX seems to be decoupling from these realities, continuing its ascent. This divergence hints at a disconnect between the stock market and economic fundamentals, largely due to investor confidence in central bank interventions and sector-specific strength, particularly in automotive and export-related industries.

Key Figures:

• IFO Index: Dropped to 85.4 in September
• BMW and Porsche: Gained over 3% amid broader economic uncertainty

Fed’s Rate Cuts and U.S. Data Boost DAX Sentiment

The Federal Reserve recently cut interest rates by 50 basis points, marking the first such move in four years, and this dovish stance has significantly bolstered the global stock market, including the DAX. While mixed U.S. economic data, such as a slight contraction in the S&P Global Composite PMI, raises concerns about growth, markets remain buoyed by the potential for more rate cuts. This monetary easing is expected to keep borrowing costs low and support investor optimism.

In Germany the benchmark index $DAX has disconnected from German business expectations.
While the $DAX is near its all-time high, the Ifo expectations index is trading ~20% below its previous peak. pic.twitter.com/c6KbYGxDf9

— Financial Berg (@FinancialBerg) September 25, 2024

Technical Outlook for DAX

• Current Price: 18,840.13, down 0.46%
• Immediate Resistance: 18,922.57; breaking higher could push the index towards 19,041.54
• Immediate Support: 18,848.78 (50-period EMA); a failure to hold may lead to a drop toward 18,805.15

With a Relative Strength Index (RSI) reading of 59.55, the DAX is in a neutral-to-slightly bullish phase. A move above 60 would likely attract more buyers, while a drop below 50 could signal bearish pressure.

In conclusion, while Germany’s economic indicators are signaling caution, the DAX remains buoyant, bolstered by strong sector performance, global central bank easing, and investor optimism. The path ahead depends on economic data and the continuation of accommodative monetary policies.