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The DAX 30 maintains its uptrend as the spread of the coronavirus has slowed significantly over the last few days.
On March 19, when the DAX 30 reached its lowest level for the year, the German daily percentage increase in coronavirus cases increased by 73%. On the same day, cases in the US increased by 51%, but it was also that day, California asked its citizens to stay at home, and a few days later, New York followed. In Germany, the government recommended people to stay home from March 20.
Since the DAX 30 reached its 2020 low, the growth rate in cases has dropped sharply, and in Germany, the growth rate declined to 7% on Monday, from 29% on the day of the lockdown. In the US the daily growth rate reached a low of 14%. Even more impressive is Italy, which saw an increase of 4.1%, but then, Italy has been under lockdown for longer.
The path of Germany, the USA, and Italy follow the steps of China, and in China, the growth rate has been zero or near zero percent for many days, allowing the Chinese economy to open again. The latest PMI data from China showed that the economy is growing again, but there is a large distrust amongst investors. Unofficial economic trackers, by the Financial Times, suggest that the economy has indeed reopened. However, it remains below potential, but it is not in free fall as the stock markets are currently proposing.
My view is that the numbers of coronavirus spread will slow further over the next few weeks, and in one month, there will be talks in the western economies to restart as the pain of the lockdown will outweigh new coronavirus growth. If I am right in my assessment, then the DAX will further add to its gains. It is, however, hard to know how the markets will react on the next month’s bad US data, yet we need to remember that the slowdown is human-made. As long as the second-round effect of the slowdown does not gain momentum, the economy might bounce back as it has in China.
From a technical point of view, the very short-term trend in the DAX 30 will remain upwards above the March 25 low of 9409, and the price might be able to reach 10625, followed by the March 10 high of 11039. A break to the March 25 low might send the index to the March 23 low of 8234.
DAX 30 Daily Chart
Written by Alejandro Zambrano, Chief Market Strategist at ATFX.
