German Stocks

Five days, five gains for the DAX

Börse in Frankfurt/Main
All smiles on Frankfurt's trading floor since the start of the year. Source: DPA

Last week, it was the Dow, this week it could be Germany’s DAX hitting a new record high. The blue-chip index has recorded its fifth straight gain since the start of the year, buoyed by a weaker euro and stronger-than-expected data for Europe’s largest economy.

Even if those gains might have slowed a little on Tuesday, the DAX index of Germany’s 30 most valuable companies is still up 3.5 percent since the start of the year. That’s even better than the Dow, which passed 25,000 last week but has only risen about 2.2 percent in total since January 1.

Germany’s DAX last hit a record in November, climbing as high as 13,516. On Tuesday, it came within 100 points of that level before investors got cold feet (or took profits) and pulled back. The index closed up 0.18 percent at 13,391.46. Still, cracking that record high looks to be only a matter of time.

“The all-time high is in striking distance and is motivating further follow-through buying,” said Timo Emden, the Germany head of online broker DailyFX.

“After a weak start to the fourth quarter, the German economy has returned to full speed.”

Carsten Brzeski, ING-Diba

Some of the optimism is flowing over from the United States, where tax cuts approved last month continue to prop up business sentiment, as well as strong economic data from other industrial and emerging economies.

But Germany is also helping itself. After a weak October, economic data for November came in far better than analysts had predicted. Industrial production climbed 3.4 percent, its strongest monthly gain since September 2009, and retail spending rose 2.3 percent. Exports climbed even higher, rising 4.1 percent on the month.

The inference: while Germany might be struggling to put together a new coalition government, its economy is chugging along just fine: “After a weak start to the fourth quarter, the German economy has returned to full speed,” wrote Carsten Brzeski, chief economist of ING-Diba.

That will probably be confirmed on Thursday, when Germany’s statistical agency releases its first estimate of the country’s GDP growth for last year. “It looks very likely that the German economy has had its best performance since 2011, and there is currently very little reason to believe that the strong performance could end any time soon,” Mr. Brzeski added.

Among other sectors, the solid economy has spurred gains in automotive stocks. Car sales jumped 2.7 percent in Germany last year, even as they fell in the United States for the first time since the financial crisis. Setting aside an ongoing diesel crisis, such strong consumer spending prospects have pushed up the value of luxury carmakers BMW and Daimler by more than 1 percent at the start of this week. Auto supplier Continental meanwhile surged more than 5 percent Tuesday on rumors of a dramatic restructuring.

A weakening euro has helped, too. On Monday the euro fell back below $1.20, a mark it had broken through at the start of the year. And that level is probably about right: Analysts polled by Handelsblatt predicted the euro will end the year around where it started at $1.18. Keeping the currency weak raises the prospects for Germany’s export-heavy economy.

The one sector holding the DAX back at the moment is finance. Deutsche Bank has been among the biggest losers of the year after likely reporting a loss for the third year in a row in 2017. Deutsche Börse, facing uncertain new leadership, wasn’t far behind in the loss column on Tuesday.

Will the overall gains last? Perhaps not, or at least not at the current pace. According to 32 banks polled by Handelsblatt, the DAX will rise 7.5 percent in 2018, putting it just above the 14,000 mark. Sure, such predictions are something of a fool’s errand so early in the year. But with about half of those gains already coming in the first week of trading, something probably has to give.

Christopher Cermak is an editor with Handelsblatt Global based in Berlin. Matthias Streit and Ilias Stampoulis of Handelsblatt in Frankfurt contributed to this story. To contact the authors: cermak@handelsblatt.com

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