The DAX corrected sharply after hitting record highs. Despite a recession risk, SAP's AI-driven growth has significantly boosted the index, contrasting sharply with the decline in major automotive stocks.
The DAX, Germany's leading equity index, recently reached new record highs, defying the growing economic challenges that many economists believe could tip the nation into a technical recession by the end of the current quarter. This remarkable market performance contrasts sharply with the decline observed among Germany's automotive stocks – none of which have posted positive returns so far this year. It is now down more than 2% from the high after the US sell-off in technology stocks after Nvidia losing 10% of its value in a week.
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Open account Try demo Download mobile app Download mobile appA critical factor in the DAX's superior performance is the extraordinary growth of SAP, Germany's leading software and technology company. SAP has led AI-driven expansion, with its stock surging by 42% year-to-date, following a 45% rise in 2023. More than a third of the DAX's gains this year can be attributed to SAP's performance.
Germany's economic woes persist
The DAX's resilience stands in stark contrast to Germany's increasingly bleak economic outlook. The nation's GDP contracted by 0.1% in the second quarter of 2024, trailing the eurozone's 0.3% growth during the same period. The manufacturing sector, historically a pillar of the German economy, is mired in a structural recession. The S&P Global Purchasing Managers' Index (PMI) for Germany slid further into contraction in August, hitting a five-month low, extending a downturn that has persisted since mid-2022.
The ifo Business Climate Index fell to 86.6 points in August from 87 in July, marking a new five-month low. Despite these challenges, SAP's success, underpinned by its strong cloud revenue growth and strategic use of Generative AI, continues to drive the DAX's performance, highlighting the divergence between the broader economic struggles and the success of Germany's tech sector.
DE40 (D1 interval)
German DAX, after hitting its all-time high, has lost more than 2% of its value and is now trying to recover some of the losses. It is sitting near the resistance at the 23.6% Fibonacci retracement level and not far away from the 100 SMA at 18,452. The RSI has cooled off and is in the upper part of the neutral zone. MACD and ADX are both heading towards bearish divergence, which might be worth observing. If bulls regain power, the resistance is at the weekly high of May this year at 18,896.
Source: xStation 5
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