The DAX index surged to its highest level on record this week, helped by the actions by the Chinese government and global central banks. It soared to a high of €19,238, bringing the year-to-date gains to 15%. It also rose by almost 6% in the third quarter.
Other European indices like the CAC 40, FTSE MIB, and IBEX 35 have also surged this week. The same happened in the United States, where the Dow Jones and Nasdaq 100 indices soared to their all-time high.
Chinese stimulus hopes
The main catalyst for the DAX index is the decision by China’s government and the central bank to deliver substantial stimulus.
The central bank lowered the reserve requirements for local banks, a move that is expected to stimulate lending by up to $130 billion.
At the same time, Chinese government officials unlocked more stimulus, which Bloomberg estimates will be worth over $140 billion.
These actions were notable because they happened in September, a sign that officials are concerned about hitting the annual growth target.
Therefore, the German DAX surged because of China’s vital role in the global economy. It has grown into the second-biggest economy and the biggest consumer of most products.
China is also a big consumer of German products, especially vehicles. Volkswagen Group generates a substantial amount of money in China, and has invested in Xpeng, a leading EV company in the region.
The German DAX also jumped because of the correlation with Chinese equities. The Hang Seng, China A50, and the Shanghai Composite had their best week since 2008.
Central bank cuts
The DAX index has also soared because of the recent actions by key central banks. The European Central Bank (ECB) slashed interest rates by 0.25% earlier this month, continuing the cutting cycle that it started in July.
Similarly, in the United States, the Federal Reserve delivered a jumbo rate cut in its bid to support the economy. Officials also hinted that they would continue with these cuts this year since the economy is slowing.
In Europe, the Swiss National Bank (SNB) slashed interest rates by 0.25% on Thursday. Other central banks like the Riksbank have also cut rates.
Stocks often do well when interest rates decline because of the rotation from bonds to equities. Low rates also incentivise people to borrow cheap funds and invest in the financial market.
The odds of more cuts rose this week after Europe and the US published weak PMI numbers for manufacturing and services.
Top movers in DAX in September
Most DAX index constituents were in the green in September. The most notable mover was Commerzbank, the second-biggest bank in Europe, which rose by over 23%. It has jumped after Unicredit boosted its stake and hinted that it may make a full take over. The German government has noted that it had no tools to resist a full buyout.
The other top mover in the DAX was Zalando, the biggest food delivery company in Germany whose shares jumped by over 20.5%. Siemens Energy shares surged by 31%, helped by central bank interest rate cuts, which will make renewable energy affordable. It has jumped by over 177% this year.
Other top gainers in the DAX were Heidelberg Materials, MTU Aero, SAP, and Deutsche Bank. On the other hand, the main laggards were firms like Continental, Mercedes Benz Group, and BMW.
DAX index technical analysis
The daily chart shows that the German DAX index has gone parabolic in the past few days. It soared to a high of €19,238, crossing the crucial resistance point at €18,895. It has invalidated the triple-top chart pattern.
The index has also remained above the 50-day and 100-day Exponential Moving Averages (EMA), while the Percentage Price Oscillator (PPO) has remained above the neutral level. It also formed an inverse head and shoulders pattern.
Therefore, the path of the least resistance for the index is upwards, with the next point to watch being at €20,000.
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