Idea of the Day: Dax vs. FTSE 100

There has been an interesting divergence of late between the performance of the Dax and the FTSE 100. The two have diverged sharply in recent days, as you can see in the chart below, with the Dax surging ahead, while the FTSE 100 has been in the doldrums.

What: There has been an interesting divergence of late between the performance of the Dax and the FTSE 100. The two have diverged sharply in recent days, as you can see in the chart below, with the Dax surging ahead, while the FTSE 100 has been in the doldrums.

We believe that there are a couple of reasons for this, and that we may continue to see this outperformance by the German index vs. the UK index for the short to medium term.

  • Firstly, we think that the outcome of the German election could be good news for the Dax, read our German election analysis here: https://goo.gl/hL4cgd
  • Secondly, we believe that the recent decline in EUR/GBP and in the euro more broadly, is also Dax supportive at the expense of the FTSE 100.
  • If Theresa May delivers a well-received speech on  Brexit on Friday, one that lays out the government’s plans for a transition deal, then her “soft” Brexit approach could be good news for the pound, weighing further on EUR/GBP. Since the Dax and the euro have a negative correlation, a weaker euro could see the DAX rise.
  • Political risk: with the German elections out of the way from next week, and the UK still mired in Brexit negotiations, the political premium could swing towards the UK and weigh on the FTSE 100 relative to the Dax for the foreseeable future.

How: we expect the Dax to continue to outperform the FTSE 100 for the rest of this week, due to optimism surrounding the German election and a potential weaker FTSE 100 on the back of a stronger pound and rising Brexit risk ahead of May’s speech in Florence on Friday.

Chart 1:


Source: City Index and Bloomberg 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.