GER40: German Data and China Security Requirements
The DAX, Germany's benchmark index, faces pressure from both economic data released this morning and China's new regulatory policies that directly affect European companies with operations in the Asian giant.
Impact of economic data in Germany
The economic data released reflects a cooling in the German economy, especially in exports (-2.9%) and industrial production (-1%). This particularly affects exporting companies, a key component of the DAX, such as Volkswagen, Siemens, and BASF, whose revenues are highly dependent on foreign demand.
Economic highlights:
1. MoM imports (November):
o Result: -0.1% (previous: 0.7%, expected: -3.3%).
o Imports show a slight contraction, indicating lower domestic demand for foreign goods. This can be interpreted as a cooling of the local economic activity.
2. Trade balance (November):
o Outturn: €13.4B (previous: €14.8B, expected: €19.7B).
o Although the trade surplus remains positive, it is below expectations, reflecting a drop in net trade due to a decline in both exports and imports.
3. MoM Exports (November):
o Outturn: -2.9% (previous: 2.0%, expected: 2.1%).
o The significant drop in exports indicates weaker demand from Germany's trading partners, which could be a reflection of a tougher global environment, especially in sectors such as automotive and machinery.
4. Industrial Production MoM (November):
o Outturn: -1% (previous: 0.5%, expected: 1.5%).
o Industrial production shows a larger-than-expected contraction, underscoring the weakness of the manufacturing sector, traditionally a backbone of the German economy.
China's regulatory requirements and their impact on DAX companies.
The German Index (Ticker AT: GER40), which represents leading German stocks, shows mixed performance today, influenced by the release of key economic data from the Eurozone and Germany. The results reflect signs of a slowdown in the industrial and commercial sector, which could lead to market volatility.
New security laws in China are forcing European companies to 'silo' their operations in the country, generating higher operational and strategic costs. This has significant implications for strategic sectors such as automotive, pharmaceuticals and technology, which are highly represented in the DAX:
1. Manufacturing and automotive sector (Volkswagen, BMW, Daimler, Siemens, BASF):
o Companies are seeing how their subsidiaries in China must operate more independently, which increases regulatory compliance costs and reduces the efficiency of supply chains.
o Uncertainty about what constitutes a “security risk” in China affects the ability of these companies to plan long-term investments.
o Industrial companies such as Siemens, BASF and Volkswagen are showing declines due to the contraction in industrial production and exports. This economic data today can be interpreted as a sign of weakness in the German economic recovery.
2. Export Sector:
International trade-oriented companies, such as Daimler and BMW, could face further pressure from falling exports, especially in key markets such as Asia and the United States.
3. Financial sector:
Banks such as Deutsche Bank and Commerzbank are stable as the data does not directly affect the financial sector, but the overall macroeconomic environment may influence their long-term projections.
4. Technology sector (Infineon, SAP):
o Technology companies are particularly exposed to the need to adapt their products and services to local regulations, which could limit their global competitiveness.
5. Pharmaceutical sector (Bayer, Merck):
o New regulatory requirements and lack of clarity on “made in China” labeling could limit access to public tenders in the country, affecting growth in a key market.
Overall implications for the DAX.
- Increased costs: Compartmentalization of operations implies additional costs in logistics, compliance and duplication of resources.
- Investment concerns: Companies could reduce their exposure in China due to regulatory uncertainty, impacting their growth prospects in the medium to long term.
- Impact on market sentiment: Sectors more exposed to China, such as automotive and technology, could see further pressure on their share prices, affecting the DAX's overall performance.
DAX technical outlook:
- The DAX has traded in a range these days between 20,384.43 and 20,241.58 points during the first hours of trading in a distribution phase. The current appearance of the long-term chart being a consolidated uptrend from January 6 with an uptrending crossover of averages.
- Key resistance at the Check Point (POC): 19,923.05 points on the daily chart, the last accumulation zone, a level to which the index could return if the economic data continues to disappoint, completing the corrective phase.
- Immediate support: It is located at the bottom of the range (20,241.58 points), which acts as a psychological barrier against further declines.
- Expected volatility: The RSI is at 48.54% in the middle zone. The combination of weak economic data and regulatory tensions in China could lead the index to test support levels in the coming sessions.
Conclusion
The DAX faces a challenging environment due to domestic economic weakness and external complications in key markets such as China. While global markets remain mindful of monetary policies, the lack of momentum in key sectors in Germany could limit the index's performance in the near term. Investors will be watching how companies adapt their operations to new regulatory requirements and upcoming macroeconomic data and statements from the European Central Bank, especially regarding the outlook for growth and monetary policy that could influence the index's outlook.
Ion Jauregui - ActivTrades Analyst
*******************************************************************************************
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
Impact of economic data in Germany
The economic data released reflects a cooling in the German economy, especially in exports (-2.9%) and industrial production (-1%). This particularly affects exporting companies, a key component of the DAX, such as Volkswagen, Siemens, and BASF, whose revenues are highly dependent on foreign demand.
Economic highlights:
1. MoM imports (November):
o Result: -0.1% (previous: 0.7%, expected: -3.3%).
o Imports show a slight contraction, indicating lower domestic demand for foreign goods. This can be interpreted as a cooling of the local economic activity.
2. Trade balance (November):
o Outturn: €13.4B (previous: €14.8B, expected: €19.7B).
o Although the trade surplus remains positive, it is below expectations, reflecting a drop in net trade due to a decline in both exports and imports.
3. MoM Exports (November):
o Outturn: -2.9% (previous: 2.0%, expected: 2.1%).
o The significant drop in exports indicates weaker demand from Germany's trading partners, which could be a reflection of a tougher global environment, especially in sectors such as automotive and machinery.
4. Industrial Production MoM (November):
o Outturn: -1% (previous: 0.5%, expected: 1.5%).
o Industrial production shows a larger-than-expected contraction, underscoring the weakness of the manufacturing sector, traditionally a backbone of the German economy.
China's regulatory requirements and their impact on DAX companies.
The German Index (Ticker AT: GER40), which represents leading German stocks, shows mixed performance today, influenced by the release of key economic data from the Eurozone and Germany. The results reflect signs of a slowdown in the industrial and commercial sector, which could lead to market volatility.
New security laws in China are forcing European companies to 'silo' their operations in the country, generating higher operational and strategic costs. This has significant implications for strategic sectors such as automotive, pharmaceuticals and technology, which are highly represented in the DAX:
1. Manufacturing and automotive sector (Volkswagen, BMW, Daimler, Siemens, BASF):
o Companies are seeing how their subsidiaries in China must operate more independently, which increases regulatory compliance costs and reduces the efficiency of supply chains.
o Uncertainty about what constitutes a “security risk” in China affects the ability of these companies to plan long-term investments.
o Industrial companies such as Siemens, BASF and Volkswagen are showing declines due to the contraction in industrial production and exports. This economic data today can be interpreted as a sign of weakness in the German economic recovery.
2. Export Sector:
International trade-oriented companies, such as Daimler and BMW, could face further pressure from falling exports, especially in key markets such as Asia and the United States.
3. Financial sector:
Banks such as Deutsche Bank and Commerzbank are stable as the data does not directly affect the financial sector, but the overall macroeconomic environment may influence their long-term projections.
4. Technology sector (Infineon, SAP):
o Technology companies are particularly exposed to the need to adapt their products and services to local regulations, which could limit their global competitiveness.
5. Pharmaceutical sector (Bayer, Merck):
o New regulatory requirements and lack of clarity on “made in China” labeling could limit access to public tenders in the country, affecting growth in a key market.
Overall implications for the DAX.
- Increased costs: Compartmentalization of operations implies additional costs in logistics, compliance and duplication of resources.
- Investment concerns: Companies could reduce their exposure in China due to regulatory uncertainty, impacting their growth prospects in the medium to long term.
- Impact on market sentiment: Sectors more exposed to China, such as automotive and technology, could see further pressure on their share prices, affecting the DAX's overall performance.
DAX technical outlook:
- The DAX has traded in a range these days between 20,384.43 and 20,241.58 points during the first hours of trading in a distribution phase. The current appearance of the long-term chart being a consolidated uptrend from January 6 with an uptrending crossover of averages.
- Key resistance at the Check Point (POC): 19,923.05 points on the daily chart, the last accumulation zone, a level to which the index could return if the economic data continues to disappoint, completing the corrective phase.
- Immediate support: It is located at the bottom of the range (20,241.58 points), which acts as a psychological barrier against further declines.
- Expected volatility: The RSI is at 48.54% in the middle zone. The combination of weak economic data and regulatory tensions in China could lead the index to test support levels in the coming sessions.
Conclusion
The DAX faces a challenging environment due to domestic economic weakness and external complications in key markets such as China. While global markets remain mindful of monetary policies, the lack of momentum in key sectors in Germany could limit the index's performance in the near term. Investors will be watching how companies adapt their operations to new regulatory requirements and upcoming macroeconomic data and statements from the European Central Bank, especially regarding the outlook for growth and monetary policy that could influence the index's outlook.
Ion Jauregui - ActivTrades Analyst
*******************************************************************************************
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
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