GER30 – Daily Chart
The GER30 index has broken out above the resistance at 20,494 and that is now key support on the daily level.
The rally in German shares is likely following the sentiment of the US because the German economy is struggling and companies are facing distress. A weak euro also boosts shares in the country. German companies are set to endure more pain in the year ahead after a new gloomy forecast said corporate distress could exceed levels of the pandemic.
Law firm Weil said Germany ranked as the country with the highest level of corporate distress across Europe. Germany reached a corporate distress level of 6.3 in November, higher than the European average of 3.6. Weakness in the economy also means that the country may not be able to close the gap this year. The UK ranked second on the list but was a distance from Germany.
Germany continues to struggle with the Ukraine/Russia conflict which added pressure to energy prices hurting the manufacturing economy. The country has also struggled as Chinese demand for exports fell.
Further stress may come from politics in February as an election is expected to bring huge support for the right-wing AfD party. Donald Trump’s inauguration on Monday may also lead to tariffs on German exports.
German shares may be in an overvalued state with this corporate backdrop but the largest firms in the top 50 index will be in better shape than the broader market. For now, the trend is to the upside and traders can use the latest breakout as a guide for the path forward.
Reduced European interest rates could add some support for the share market. ECB member Centeno said, “If we look at the next months, quarters, year and a half, we see inflation clearly converging to values probably slightly below 2%, and interest rates in the Eurozone will continue on a trajectory ideally to values also close to 2%”.
Important Chinese data at 10am HKT on Friday could boost global shares, including Germany, with GDP and retail sales figures ahead.