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Forecast for DAX 30 for 17th June 2020

June 17, 2020

June 17, 2020

DAX 30: Citius, Altius, FortiusDmitri Demidenko

German stock index outruns US counterparts. And it’s just a beginning

The epic rally of [S&P 500][1] proved once again that stock indexes recover faster than GDP after a recession. If this theorem is correct, a faster growth of a stock market correlates with the corresponding economy’s faster return to the trend. In this regard, the 40% rally of S&P 500 from March’s maximums isn’t as impressive as German [DAX 30][2]’s 50% retracement from the bottom. Germany will recover faster than the US. It is positive news for both the euro and the fans of the eurozone’s largest economy.

Global investors had stood aside off European stock indexes for a long time, fearing a split in the EU where rich countries didn’t feel glad about having to help poorer members. Much changed after Berlin and Paris took the initiative and suggested a large fiscal stimulus, which cheered the markets up. According to BofA Merrill Lynch, the portfolio share of European stocks increased by 24 pct over the last month. It’s the best dynamics for any region for that period.

Germany is a ray of light and makes medium- and long-term prospects of [DAX 30][2] brighter. The main drivers of the stock index are a hope for a fast recovery of the German economy, large fiscal and monetary stimuli, step-by-step improvement of corporate reports and a high global risk appetite. According to the OECD’s forecasts, the German GDP will reduce by 6.6% in 2020 in the absence of the second wave of COVID-19 (for comparison, the US GDP will drop 7.3%). Taking into account the latest relief package of 130 billion euro, the Bundesbank expects that the economy will fall 6.1% this year and recover 3.7% and 3.8% in 2021-2022, respectively.

OECD’s forecasts for GDP

![LiteForex: Forecast for DAX 30 for 17th June 2020][3]

Source: Bloomberg.

A softer lockdown and the success of the German health care system allowed reopening the national economy faster. The share of the people employed in the most affected sectors in Germany is lower than in other big states while the fiscal stimulus amount is higher. It allows counting on a fast GDP growth as soon as the situation has been brought back under control.

The share of the people employed in the hardest-hit sectors

![LiteForex: Forecast for DAX 30 for 17th June 2020][4]

Source: Bloomberg.

Fiscal stimulus in % of GDP

![LiteForex: Forecast for DAX 30 for 17th June 2020][5]

Source: Bloomberg.

The ECB’s firm intention to keep European bond market rates at a low level and the big share of industrial stocks in the structure of [DAX 30][2] are bullish factors. Obviously, the industrial sector will be recovering faster in the post-pandemic period than the service sector, which will be afraid of the second wave.

I think that the main dangers to the German stock market are the epidemiological situation’s worsening and a renewal of the US-China trade war.  If these don’t happen, [DAX 30][2] may be bought safely at resistance breakouts of 12,450 and 12,840. The initial targets are at 13,720 and 13,860.

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Price chart of FDAX in real time mode

![DAX 30: Citius, Altius, Fortius][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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