The DAX index retreated for seven consecutive days as concerns about the hawkish Federal Reserve and Donald Trump tariff threats continued. The index, which tracks the biggest companies in Germany, fell to €19,780, its lowest level since December 2nd. It has fallen by 3.75% from its highest level this year.
German stocks confront risks
The DAX index has retreated as many German stocks confronted potential risks this week. There are political risks in Germany, where the government has collapsed after Olaf Scholz sacked the finance minister. The country will now go to an election in February.
The German government has collapsed as woes in the German economy have continued. Data shows that the economy has barely grown since the pandemic, while the American GDP is up by 12% in the same period. If this trend continues, it means that it will soon be overtaken by India.
Unfortunately, the economic situation in the country is getting worse as some companies have continued to struggle. For example, Volkswagen, one of the top manufacturers is talking about cost reductions and plant closures.
The auto industry that has supported Germany for years is going through an existential crisis as Chinese competition rises. Companies like XPeng, BYD, and Li Auto are all seeking to gain market share in the country.
The DAX index also crashed after the hawkish Federal Reserve. In it, the bank hinted that it will deliver just two rate cuts in 2025, lower than the previous four. As a result, most global stocks have retreated as US bond yields continue rising. German stocks tend to react to Fed actions more than the European Central Bank.
The DAX index has also retreated as concerns about tariffs rose. Donald Trump, the American president, warned that he would impose tariffs on European goods if the bloc failed to buy more American energy.
A trade war between Europe and the United States would hurt many companies in the DAX index because of their exposure to the US. For example, firms like Volkswagen, BMW, Adidas, and Siemens generate most of their sales in the US.
Read more: Here’s why the DAX index has surged to a record high
Top German stocks in 2024
Many German companies have done well this year. Siemens Energy, which nearly collapsed in 2023, has soared by 312% this year after it received a government-backed bailout.
Rheinmetall, a leading defense contractor, has surged by 113%, helped by the rising demand for military equipment as geopolitical issues rise.
The other best-performing German stocks were MTU Aero, Zalando, SAP, Commerzbank, and Deutsche Bank. Commerzbank stock surged as Unicredit, a giant Italian bank, accumulated the stock.
There were some notable laggards in the DAX index. Bayer stock plunged by over 44% this year, while Deutsche Post, Porsche, BMW, RWE, Sartorius, and Volkswagen fell by over 20%.
DAX index analysis
The daily chart shows that the DAX 40 index peaked at €20,512 earlier this month and then retreated. It has dropped to the key support at €19,676, a notable level that was its highest swing in October.
The pair has moved to the 50-day and 25-day moving averages, while the two lines of the MACD indicator have tilted downwards. Also, the Relative Strength Index (RSI) has pointed downwards.
Therefore, the index will likely bounce back now that it has formed a break and retest pattern, a popular continuation sign. More gains will be confirmed if the index rebounds above the year-to-date high of €20,500.
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