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  • DAX climbs as hopes build for more economic stimulus.
  • ECB takes center stage on Thursday.
  • Insurance stocks and cycles on the rise.

Hopes for further economic stimulus and monetary policy support measures for the countries battered by the coronavirus crisis caused a sharp rise in the German benchmark index DAX on Wednesday. Support was also provided by the US stock market, which has in the meantime made up for its losses from the corona crash in mid-March.  

ECB takes center stage

The focus is now shifting to the meeting of the European Central Bank, where economists expect an increase in the pandemic emergency purchase program (PEPP). Rabobank is even forecasting a reduction in the deposit rate by 10 basis points. “The ECB is likely to announce a €250 billion addition to PEPP and a 10 bps cut in the discount rate,” the Dutch Rabobank said in a note. 

“So, following the principle of the earlier collateral easing, the ECB could also decide to include so-called ‘fallen angels’ into the programme,” said Carsten Brzeski, Chief Economist, Eurozone and Global Head of Macro at ING.

The ECB will also examine possible scenarios on how the public sector purchase programme could be continued without the Bundesbank’s involvement, following the ruling of the Federal Court of Justice.

The DAX rose 3.88% on Wednesday to close at 12,487 points. It was the highest daily close since February 27, 2020, and at the same time the first close above the key 200-day moving average, which currently stands at 12,111 points. In the first two trading days of June alone, the German stock index rose by more than seven percent. 

The MDAX was up 2.29 percent and the SDAX gained 2.51 percent. The TecDAX advanced 1.63 percent.

Insurance stocks and cycles on the rise

Especially stocks from the insurance industry were in demand. Allianz rose by 8.5% and Munich Re by 8.3%. Cyclical stocks such as BASF climbed by 6.3%, Daimler and BMW by 4.8%. Traton surged by 10.33%.

Investors continue to ignore the negative factors. The massive riots in the United States, the developments in Hong Kong and the increasing tensions between the USA and China cannot slow down the stock market rally. 

German DAX 30 key technical levels

According to the Credit Suisse analysts, the jump of the DAX above the 200-day line has called into question the long-term bearish view. “A break on a weekly basis above that level would question our long-term bearish view,” they said in a note.

The next relevant resistance is the “78.6% retracement at 12610, potentially as far as at 12887. Only a break of 11430/10867 would take the momentum out of the current rally, with next key support to watch at 10161,” they added.

DAX Daily