Is Germany's economy the biggest indicator for DAX traders?For over half a year, traders have been witnessing the epic rise of Germany’s Dax index (DE30), recently passing $18,000 (USD). For decades, the index, a beacon of Germany's corporate power, seemed invincible, with its German companies all reaching new peaks. But beneath this veneer of German engineering and strength, the foundations are shaking. Germany's robust economy, the engine of Europe, is showing unmistakable signs of wear.
Just last year, economists started pointing to the subtle yet telling signs of an impending downturn for Germany. Since then, GDP growth was slashed to 0.2% for 2024, a significant and disturbing downgrade from previous forecasts. The manufacturing sector continues to suffer from weak global demand and high energy costs, with harsh implications for future exports.
In addition, shortages in skilled workers plague major industries, and yet the unemployment lines, rarely seen in this land of efficiency, are growing.
Despite all this gloom, the DAX continues its upward trajectory, seemingly oblivious to any doom on the horizon. There is a clear disconnect between the DAX's performance and the weakening German economy. Perhaps the market, often driven by sentiment, has not yet caught up with reality. If that’s true, then we are all looking at a pending opportunity to take a position before the action begins.
Germany’s economic indicators are contrasting the current DAX price trend. For technical traders, all signs are bullish. But for economists and fundamental traders, shorting DE30 at the all-time high may well seem like an obvious move.
Before you trade DE30, consider that the markets are not reacting with traditional patterns.
In theory, it makes sense that the top-performing companies of an economically failing nation would experience financial complications, but we are seeing a similar and puzzling disconnect in the US too. Despite all the woes, USD and US indices are still flying high. Coincidence? Maybe.
One thing is for sure, traders closely watching the current political and economic stage will stand a better chance of being the ‘early bird’ for any major rallies and crashes in 2024.
