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  • DAX ends on a positive note, but closes the trading week with a minus of 4.09%.
  • Wirecard collapses again due to short selling.
  • German economy with biggest slump in growth since the great financial crisis.

The DAX closed Friday on a positive note. However, on a weekly basis, the German benchmark suffered losses. The sharpest slump in growth since the great financial crisis had only a brief impact on share prices. Even the new skirmishes between the USA and China could not dampen the mood of investors for a long time. 

The DAX ended Friday’s trading with a plus of 1.24% at 10,465.17 points. On a weekly basis, the German stock barometer fell by 4.09%. The MDAX rose by 1.20% to 23,270.68 points and the SDAX advanced by 0.49% to 10,243.07 points. The technology-driven TecDAX rose by 0.17%.

Wirecard collapses again

On the corporate side, the focus was again on Wirecard shares. The stocks of the German payment services provider collapsed by 8.71%. They reached their lowest level since mid-September 2017 at EUR 72.35. According to a report by Reuters, the German financial supervisory authority BaFin is not planning a ban on short selling of Wirecard shares. 

Recently, hedge funds have shown a sharp rise in interest in selling the share. According to the Bundesanzeiger, about 10 percent of all Wirecard shares are currently being sold short. 

At the end of April, KPMG had published a special report, which, however, was unable to dispel the remaining doubts about Wirecard’s business practices. As a result, the short sellers increased their positions and pushed the share price down by more than 42 percent since 28th of April. 

Among the winners in the DAX were the stocks of Volkswagen, Deutsche Post, Continental and RWE with a gain of 4.37 to 3.12%.

German economy suffers the biggest slump in growth since the great financial crisis due to coronavirus

Due to the corona crisis, the German economy contracted in the first quarter to a level not seen since the major financial crisis. Gross domestic product shrank in the first three months of the current year by 2.2% compared with the previous quarter. 

“This was the sharpest decline since the global financial and economic crisis of 2008/2009 and the second sharpest decline since German unification,” the Federal Statistical Office announced on Friday in a first estimate.

Exports, consumption and investment were the areas where the biggest declines in growth were recorded.

“The worst contraction of the German economy since 2009 is not where the current crisis will end. The second quarter will be more dreadful,” commented ING Chief Economist Carsten Brzeski. “To be more precise, incoming data will be worse, even though the worst might already be behind us,” he added.

Trade tensions push stock markets down

Concerns about a renewed escalation of trade tensions between the US and China have contributed to another sell-off in equity markets this week. 

US President Donald Trump, has threatened to cancel the trade agreement with China, saying he is “disappointed” by Beijing. In addition, the U.S. government banned U.S. chip manufacturers from supplying the Chinese telecommunications giant Huawei.  

If trade tensions again escalate into a trade war, there is a danger that the global economy could slide from a recession in the wake of the Corona crisis into a depression, which would weigh on the stock markets in the long term.

On the other hand, the central banks are currently providing a sufficient amount of liquidity that investors will ultimately be forced to invest in equities. This should continue to support the stock markets in the future. 

“Support from monetary authorities and comparatively appealing valuations will, in our view, continue to underpin demand for risky assets once the dust settles after coronavirus,” said Oliver Jones, Senior Markets Economist at Capital Economics, in a note.

German DAX 30 key technical levels

From a technical perspective, the situation in the DAX remains bleak given the recent losses. In order to initiate a major recovery movement, a rise above the 20-day moving average at 10,634 points is required. Thereafter, the 10,800 point mark could come back into focus. On the downside, a slide below the 50-day moving average at 10,216.90 must be avoided by all means, as otherwise a slide to the psychologically important 10,000 mark is imminent.

DAX Chart