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  • Profit-taking on Wednesday causes losses in the DAX. 
  • Weak economic data is weighing on the mood of German investors.
  • DAX is still holding above its 50-day moving average at 10,458.20.

After significant gains the day before, the German stock market lost strength again in the middle of the week. Weak economic data from Germany and the USA put a damper on investors’ confidence. Yesterday’s decision by the Federal Constitutional Court, which declared the European Central Bank’s (ECB) purchases of government bonds in its Public Sector Purchase Programme (PSPP) to be unconstitutional, may also have depressed sentiment.

DAX closes above 50-day moving average – Wirecard and BMW slumps

The DAX closed with a minus of 123.26 points or 1.15% at 10,606.20 points. Despite today’s losses, the German stock index can still hold above its 50-day moving average. However, for a resumption of the correction trend established since mid-March, it will require a rally above the high of April 30 at 11,235.57 points. 

The MDAX, which comprises medium-sized German companies, fell by 34.95 points to 23,082.78 points. The SDAX lost 0.17% to 10,422.34 points, while the technology-oriented TecDAX closed 0.14% down to 2,885.74 points. 

Among individual stocks, Infineon shares were in demand. The chip manufacturer gained 5.21%. Beiersdorf gained 2.26% and Fresenius Medical Care advanced 2.0%. BMW, Wirecard and Lufthansa brought up the rear of the DAX. BMW, Wirecard and Lufthansa posted heavy losses. 

Weak economic data weigh on DAX

In Germany, miserable economic data were once again published. As a result of the corona restrictions, industrial order intake plummeted more sharply than at least in 30 years. As at the reporting month of March, they had slumped by 15.6%. A decline of minus 10% was expected.

“Let’s be clear: this is not only the result of the lockdown measures in Germany but also driven by the lockdown measures elsewhere and supply chain disruptions”, said Carsten Brzeski, Chief Economist at ING, in a note. “During the midst of the financial crisis in 2008 and 2009, industrial orders dropped by a cumulative amount of around 40%, over a period of six months. Needless to say that if the current pace continues, it would do much more than spoil the breakfast appetite”, he added.

Weak euro-zone data also put a strain on the DAX as retail sales in the euro-zone fell 11.2% in March compared to the previous month due to the outbreak of coronavirus disease (COVID-19) and the resulting lockdowns, Eurostat said in a release on Wednesday. 

The final euro-zone Purchasing Managers’ Indices (PMIs) have been subject to slight upward revisions, but nonetheless remained close to their record lows. With the reopening of economies in many parts of Europe, some analysts expect sentiment indicators to rise above the 50-point growth level as early as May.

“The PMIs may well rise above 50 in May as the easing of lockdowns allows activity to pick up compared to April,” Capital Economics said in a note. “But if the PMIs are only slightly above 50, as seems likely, they would still be consistent with output at a very low level. We think it will be several years before GDP returns to its pre-crisis level”.

Meanwhile, the EU Commission expects a historic slump in growth in the eurozone this year.  For 2020, the institution anticipates a GDP decline of 7.75%. The reason for this is the corona crisis in the EU, which has led to nationwide lockdowns. However, the Commission expects growth to recover by 6.25% in 2021.

In the US, ADP announced that more than 20 million jobs had been lost in April. A large part of these were in the service sector. Following the report, Fed member James Bullard said that the unemployment rate in the US could rise to 16%. The official US labour market data will be released on Friday. 

Tomorrow the focus will be on industrial production from Germany. Economists expect a decrease of 7.5% in March. After that, investors will turn their attention to the weekly U.S. labor market data. 

German DAX 30 key technical levels

In terms of technical analysis, he situation in the DAX remains neutral. The RSI is floating in neutral territory at 51.5 while the MACD is showing a buy signal. Support stands at 10,585.54 (S1), 10,440.27 (S2) and 10,458.20 (50-day moving average). Meanwhile, resistances are at 10,662.77 (pivot), 10,755.45 (5-day line) and 10,885.27 (R2).