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Dax Drops As Fears Of Coronavirus' Economic Impact Grow

In line with other equity markets across the globe, the Dax is declining in early trade. Fears over coronavirus and its impact on the Chinese economy, global growth and trade have weighed heavily on sentiment. 

The number of cases of coronavirus in mainland China has outnumbered the infections in China during SARS in 2002/3. At that time Chinese GDP was at 11% and the economic impact of SARS knocked 2% off the GDP in the relevant quarters.

Evidence is mounting that the deadly virus outbreak is disrupting China’s economy. Economists have started slashing growth figures from 0.3% - 4% as authorities start restricting travel and lock down cities. Chinese New Year is usually a time of huge spending on travel, entertainment, dinning out and shopping. Many companies have suspended their operations and the Chinese will not be spending anywhere near the $145 billion that was spent around the last Chinese New Year.

China is responsible for 15% of global GDP. When China sneezes the rest of the world catches a cold. As we have seen with US – China trade dispute, declining global confidence and trade has the potential to hit exporter nation Germany hard.

German data
Data coming out of Europe’s largest economy this morning hasn’t helped ease the run on German stocks. Germany’s unadjusted employment rate rose in January, 198,000 higher than the previous month and 20,000 higher than a year earlier.
Investors will now look ahead to German inflation data. CPI is expected to decrease -0.6% mom in Jan. US GDP figures could also help drive sentiment. US economic growth is expected at 2.1%#

Chart thoughts
Dax has dropped over 1% breaking through its 200 sma on 4 hour chart. The Dax trades below 200, 100 and 50 sma on a bearish chart.
Immediate support at 13106 (low 8th Jan) prior to 12948 (low 6th Jan). On the flip side resistance is around 13350, (100 sma swing high 29th Jan), followed by 13430 (50sma) which could open the door to 13604 (high 24th January).


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