Sentiment towards global stocks remain positive heading deeper into a pivotal week. Earnings from US technology giant Microsoft, Alphabet, Meta Platforms, Amazon and Apple are all due to come Wednesday and Thursday, sandwiched between major central bank meetings including the Federal Reserve, Bank of Japan and the European Central Bank. All this, while the markets await the Trump-Xi meeting, where an extension of the trade truce is expected. Unless there is a major escalation in the trade war between the US and China this week, sentiment should largely remain supported for risk assets. US tech earnings will be super important for the Nasdaq 100 and S&P 500 given that these 5 companies account for about a quarter of the Spoos. Outside of US, European stocks continue to shine and one that looks set to stage a fresh breakout is the DAX, Germany’s benchmark stock index. We maintain a bullish DAX forecast and expect the index to potentially climb to 25,000.
Analysis: Why are global markets rising?
The ongoing strong global stock market performance is due to a combination of largely favourable factors. For a start, it is the fading uncertainty over US-China trade war. This had caused asset prices to plunge earlier this year, but we have since seen the unwinding of those bearish bets since April, causing a sharp recovery that has continued until now. Then you have companies beating earnings expectations, justifying to some degree their high valuations. Earnings results have not been showing much in the way of tariff-related hit, with most companies this season beating their top and bottom lines.
At the same time, you have major central banks now cutting interest rates which is providing a favourable backdrop for stock markets and helping to cushion the impact of economic weakness and political uncertainties.
On top of all this, Germany’s record stimulus package announced earlier this year will start to make it way through the real economy starting in the next few months and expectations that the stimulus measures will help stimulate the eurozone’s largest economy is being priced in ahead of time.
The lack of any major bearish catalysts is also largely helping to keep the bears away, keeping the DAX forecast and those of the other global indices bullish.
Technical DAX forecast: Key levels to watch
From a technical perspective, the DAX forecast is bullish as the German index continues to coil inside a tight-ish range. We expect the index to start climbing higher, catching up with the more recent gains seen elsewhere in the global markets. The DAX has now reclaimed its short-term 21-day exponential moving average and held above some key support levels including 24,000. The index was testing an important resistance level near 24,300 at the time of writing. This level also marks the resistance trend of a short-term resistance trend of a continuation pattern. A clean break above it could see the index rise towards the recent range high between 24,650-24,770. Above that area, the next big hurdle is the psychologically significant 25,000 mark, which is our next upside target.
Meanwhile if this week’s macro influences trigger a slide in global markets, then we could see the DAX drop to longer-term support levels such as 23,280-23,480 area.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
