The Robomarkets Weekly Review and Outlook – DAX in Record Mood – Despite Gloomy Mood in the German Economy

Jürgen Molnar, Capital Market Strategist RoboMarkets

28 July 2023

The fact that the DAX touched its all-time high after two more interest rate hikes by the US Federal Reserve and the European Central Bank was probably the next surprise for most investors in this stock market year 2023, which has gone much differently than expected. However, because the Dow Jones broke its 13-day winning streak in New York on Thursday and technology stocks also turned negative after a strong opening, the rally of the DAX on the old record was over for the time being.

From a technical point of view, it would now be advisable to quickly overcome the all-time high in order not to expose oneself to the risk of a double top with subsequent downward movement. The question is, however, how much strength the investors and how much room the DAX still have to move upwards. Stronger-than-expected economic data from the USA are set against an increasingly gloomy mood in the German economy. And in the current reporting season, companies are also rather cautious about the future.

Meagre Future Prospects for the Chemical Industry

The chemical industry, for example, has a massive demand problem. BASF sold almost a quarter less in the first half of the year than a year earlier. The biggest problem is the strong decline in demand from China and the resulting drop in prices. Profits have also dropped by a quarter compared to the previous year. The industry is facing a tough time as long as China, the driving force of the global economy, is weakening.

Although BASF wants to stick to its strategy in the Middle Kingdom, which is certainly correct, it is likely to be a bumpy ride in the short term. And Bayer is also lowering its outlook for the rest of the year. Sales and prices of the crop protection agent glyphosate are falling significantly and this is putting pressure on the balance sheet. Consequently, the profit forecast is revised downwards by around ten percent.

No Confidence in German Carmakers

The German carmakers’ business is improving somewhat. Mercedes-Benz was able to increase profits in the second quarter by 14 percent to 3.6 billion euros. In addition, the forecast for the year as a whole has been raised. And Volkswagen is also doing better again. The delivery bottlenecks, which had been a burden on production recently, have almost completely disappeared. In the first half of the year, the Wolfsburg company delivered 13 percent more cars than in the previous year. For the year as a whole, too, revenues are expected to increase by at least ten percent. But share prices continue to lag behind this good news. Investors do not seem to believe the news yet, nor are they attracted to the sector by the high dividend yields of the carmakers compared to other DAX stocks.

Deutsche Bank and the High Costs

Deutsche Bank’s quarterly figures also looked very good at first glance. Germany’s largest financial institution was able to increase its revenues in the second quarter by eleven percent compared to the previous year. The announcement of a share buyback programme of 450 million euros should also make investors feel positive. A drop of bitterness, however, are the bank’s costs, which continue to rise, resulting in a pre-tax profit that was almost ten percent lower than the year before. Even though investors had expected an even higher loss, as long as the German industry leader does not get its costs under control, there is no price fantasy in the share despite good business development.

Start of the Weaker Stock Market Phase

Next week, one of the better stock market months comes to an end and we enter a bit of the sour pickle period, others call it summer break. In the past, August and especially September were the weakest months of the year on average, both on Wall Street and for the DAX. And the coming week is again the week of sentiment indicators from the industrial and service sectors of the major economies.

On Monday and Tuesday, the purchasing managers’ indices from China could cause further disappointment, as things have not been running smoothly in the Middle Kingdom for several months. In the middle of the week there will be data from the USA and the Eurozone, including Germany. On Thursday, the Bank of England will be the latecomer on the world monetary policy stage with a decision on key interest rates.

DAX – Current Supports and Resistances

Supports: 16,250/16,200 + 16,050/16,000 + 15,950/15,900

Resistances: 16,400/16,450 + 16,550/16,600 + 16,700/16,750

This article is from RoboMarkets.