Dax Follows Global Markets Higher. Can it last?

Equity indices across the board are charging higher as rebounding US Treasury yields lift sentiment.

At the end of last week, grim German factory data and the Fed doubling down on dovish rhetoric rekindled concerns over global economic growth. US treasury yields inverted, giving to talk about recession, sending investors into panic mode.

Today US treasury yields are recovering, calming nerves, allowing a bounce in stocks as the recent selloff looks overdone.

Dax shrugs off weak data
 Whilst German manufacturing has been hit hard by slowing global demand, today we saw German consumer confidence unexpectedly declined heading towards April. This is particularly poignant as domestic demand will need to drive the German economy this year as exporters struggle with the slowing global economy, Brexit and the ongoing trade tensions.  

The move lower in consumer confidence should only be short lived, as high employment and strong wage growth should ensure consumers continue to spend well. However, this is on the assumption that uncertainty caused by Brexit and the ongoing US - Sino trade dispute doesn’t pick up further.

Proxy for global growth
The Dax is a proxy for global demand. Whilst global growth concerns remain front and central to what is directing the markets, we can expect the Dax to underperform. When fears over global growth ease, the Dax is just as capable of outperforming.

Whilst the Dax is up 0.7% at the time of writing, there is a chance this is more of a dead cut bounce rather than anything more significant. We would be looking for a move above 11475 to break the trendline on the 15 minute chart and indicate a more positive bias. On the downside strong support can be seen at 11300.


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