Dax Index News: Can the DAX Sustain Its Rally Amid Fresh US Tariff Threats?

DAX Hits Fresh Record High as EU Defense Plans Resonate

The DAX resumed its move toward 23,000 on Tuesday, February 18, rising 0.20% to close at 22,798 after a 1.26% rally on February 17. Significantly, the DAX hit a record high of 22,883 before retreating below 22,800.

Ukraine-Russia peace talks and EU plans to boost defense spending to counter a potential Russian attack influenced market sentiment. However, uncertainty about potential US tariffs on German goods capped the upside.

Sector Highlights: Autos and Banks Shine

Banks and automakers were among the top performers. Commerzbank rallied 1.90%, while Deutsche Bank advanced by 1.41% on rising government bond yields. Rising bond yields can boost banks’ net interest margins (NIM) and profitability as banks may charge higher rates on new loans.

Meanwhile, autos continued to trend higher as hopes of rising demand from China offset US tariff fears. Daimler Truck Holding gained 1.72%, while Mercedes-Benz Group and Porsche rose 1.15% and 0.73%, respectively.

ZEW Economic Sentiment Signals a Stronger Outlook

Germany’s ZEW Economic Sentiment Index jumped from 10.3 in January to 26.0 in February. The highest reading since July 2024 suggests a sharp improvement in sentiment toward Germany’s economic outlook.

Hopes for post-election fiscal stimulus and bets on multiple ECB rate cuts boosted analyst optimism. Economists expect Germany to loosen its debt brake. The new German government could adjust the debt brake, amongst other measures, to bolster the economy.

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 pivotal moment for the DAX. With the Christian Democratic Union (CDU) and Christian Social Union (CSU) leading the polls, political and fiscal policy certainty could fuel further market gains.

US Data Sends Mixed Signals

Meanwhile, US manufacturing showed signs of recovery, while housing data signaled weakness on February 18.

The NY Empire State Manufacturing Index rose to +5.7 in February, up from -12.6 in January, signaling improving activity. However, sub-components challenged expectations of sustainable growth. Hiring slowed as business optimism tumbled on concerns about supply and lackluster business investment. Additionally, inflationary pressures picked up, potentially delaying Fed rate cuts.

Meanwhile, the NAHB Housing Market Index unexpectedly fell from 47 in January to 42 in February. A slowdown in the housing sector could weigh on consumer sentiment and spending, dampening demand-driven inflation. Economists consider the housing market a barometer for the US economy.

US Markets Edge Higher Amid Tariff Concerns and Fed Rate Path Jitters

US equity markets posted modest gains on Tuesday, February 18, as investors digested the latest US data while looking ahead to Wednesday’s FOMC meeting minutes. The S&P 500 gained 0.24%, while the Nasdaq Composite Index and the Dow advanced by 0.07% and 0.02%, respectively.

Notable movers included Meta (META), which slid by 2.76%, while Amazon.com (AMZN) posted a 0.89 loss amid pre-Fed Minutes profit taking.

In the bond markets, 10-year US Treasury yields rose for the first time in three sessions, tempering demand for risk assets. Rising yields reflected investor concerns about a pickup in inflation and the potential effects of US tariffs on the Fed rate path. Tariffs could increase import costs, fueling inflationary pressures.

Key Focus: US Housing Market

On Wednesday, February 19, the US housing market will face more scrutiny. Economists expect housing starts to slide by 9% in January after surging 15.8% in December. Building permits are expected to fall 0.8% in January, following December’s 0.7% drop.

Deteriorating housing market conditions may impact home prices and consumer confidence. Weakening consumer confidence may affect spending, dampening demand-driven inflation. However, an unexpected rise in housing starts and building permits may challenge bets on an H1 2025 Fed rate cut.

Beyond the economic calendar, Ukraine peace talks and US tariff developments could further influence market sentiment. German auto, chip, and pharma stocks could face selling pressure after Trump’s latest tariff threat.

Near-Term Outlook

The DAX’s performance will largely depend on US data and central bank forward guidance.

• Weaker US data and dovish central bank forward guidance could push the DAX toward 23,000.
• Upbeat US housing sector data and a hawkish Fed stance may impact rate-sensitive German stocks, potentially dragging the Index below 22,500.

US trade policy and geopolitical tensions remain critical risk drivers. If US-EU trade rhetoric escalates, export-driven German stocks could suffer. However, any positive trade developments could support further DAX gains.

As of Wednesday morning, futures indicated a testy start to the mid-week session. DAX futures rose 2 points, while the Nasdaq 100 mini gained 43 points.

DAX Technical Indicators

Daily Chart

After the positive start to the week, the DAX sits well above the 50-day and 200-day Exponential Moving Averages (EMAs). The EMAs affirm bullish price signals.

A break above the February 18 record high of 22,883 could signal a move toward 23,000. The DAX could target 23,150 next if it breaks out from the crucial 23,000 level.

Conversely, if the DAX drops below 22,750, the bears may target the 22,500 level next.

With the 14-day Relative Strength Index (RSI) at 80.17, the DAX remains in overbought territory (RSI above 70). Selling pressure could intensify at the record high of 22,883.

Conclusion: Key Drivers to Watch

Traders should closely monitor US housing data and commentary from the Fed and ECB for potential market shifts. Additionally, tariff developments and geopolitical risks will remain pivotal to risk sentiment.

Access our latest analysis here for a deeper dive into how global market dynamics influence the DAX.