DAX 40: the German stock market returns to test a major bearish slant

DAX benefits from renewed risk appetite but outlook remains bearish

The German stock market has taken advantage of investors’ renewed appetite for risk since mid-October to rebound. The DAX rebounded 10% in two weeks, in the wake of Wall Street, against a backdrop of lesser than expected monetary tightening from the Fed.

Operators are now anticipating Fed rates for 2023 of between 4.75% and 5.00%, compared to more than 5.00% at the beginning of October. Investors seem to be making the same mistake as at the start of the summer, anticipating a pivot from the Fed when inflation shows no signs of slowing down. Core inflation even continues to accelerate, reaching levels not seen for almost 40 years, which increases the chances of Jerome Powell’s toughening tone after the monetary policy meeting on Wednesday.

Moreover, the fundamentals continue to deteriorate, whether in terms of macro or microeconomics. The corporate results season is rather disappointing with very weak profit growth and numerous warnings for the coming quarters.

Against this backdrop of tightening monetary policies across the globe and economic slowdown, the outlook for risky assets remains gloomy, and is likely to continue to be so as these headwinds are expected to strengthen over the coming months.

DAX 40 (Turbo Germany 40) daily price chart – key levels


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