Dax Index News: Auto Stocks Slide as US Protectionism Hits Market Sentiment

DAX Opens Lower as US Protectionism Spooks Investors

The DAX Index opened lower on Tuesday, February 25, falling 0.30% to 22,359.

Concerns about new US tariffs dampening demand for German goods and their potential influence on the Fed rate path weighed on investor sentiment.

A broader pullback in Asian markets set a cautious tone for Tuesday’s European session. Traders assessed US-China trade tensions, particularly escalating in the US-China AI sector, raising fears of a full-blown US-China trade war.

Sector Performance: Auto Stocks Slide

Auto stocks were among the worst performers. Volkswagen opened 0.64% lower, with BMW, Mercedes-Benz Group, and Porsche dropping early in the session. Investor appetite weakened amid concerns over declining global demand for German automobiles.

German Economy Contracts in Q4 2024

The German economy was under the spotlight on Tuesday, February 25. According to the finalized GDP report, the economy contracted by 0.2% quarter-on-quarter after expanding by 0.1% in Q3 2024.

Key highlights from the Destatis Report:

• Exports of goods and services fell 2.2% quarter-on-quarter in Q4, the sharpest drop since Q2 2020.
• Investment in equipment, primarily machinery, devices, and vehicles, declined for the fifth consecutive quarter, signaling persistent economic weakness.
• The manufacturing sector struggled, with mechanical engineering and motor vehicle production experiencing notable declines.
• Meanwhile, consumer spending rose 0.2% in the quarter.

The fourth quarter contraction came as investors weighed the threat of US tariffs on EU goods. Germany’s auto sector remains particularly vulnerable. A tariff hike on autos, semiconductor chips, and pharmaceuticals could further impact demand for German goods, denting the German economic outlook and influencing the ECB rate path.

US Markets Recap: Key Takeaways

On Monday, February 24, US equity markets had a mixed session as investors considered US tariff developments. The Nasdaq Composite Index and the S&P 500 fell 1.21% and 0.50%, respectively, while the Dow gained 0.08%.

President Trump reaffirmed plans to roll out tariffs on Canada and Mexico, effective March 4, with sweeping reciprocal tariffs due in April. Markets fear higher tariffs could fuel inflationary pressures, potentially leading to a more hawkish Fed rate path, which may increase borrowing costs and affect corporate earnings.

US Consumer Confidence and the Fed in Focus

On February 25, consumer confidence trends will influence sentiment toward the Fed rate path and demand for risk assets. Economists forecast the CB Consumer Confidence Index to fall from 104.1 in January to 103 in February.

A sharper fall in sentiment could signal a pullback in spending, impacting the US economy and inflation. A softer inflation outlook may revive hopes for an H1 2025 Fed rate cut. Conversely, an unexpected rise could indicate higher spending, fueling demand-driven inflation. A higher inflation outlook could force the Fed to maintain its hawkish policy stance for longer, influencing borrowing costs and corporate earnings.

Beyond the data, traders must monitor tariff-related developments and Fed forward guidance. Continued tariff threats and hawkish Fed signals could pressure the DAX.

Near-Term Outlook

The DAX’s near-term trajectory will depend on US economic data and central bank commentary:

• Stronger US data and rising inflation could lower bets on ECB and Fed rate cuts, potentially pulling the DAX toward 22,000.
• Weaker data and softer inflation may support more dovish central bank outlooks, pushing the DAX above 23,000.

Additionally, geopolitical risks and trade relations remain pivotal:

• US-EU trade tensions could weigh on German stocks, while hopes for a US-EU trade deal may drive the Index to record highs.
• The German elections and coalition negotiations also need consideration.

As of Tuesday morning, US futures pointed to a choppy session, with the Nasdaq 100 mini down 44 points.

DAX Technical Indicators

Daily Chart

After Monday’s gains, the DAX remains well above the 50-day and 200-day Exponential Moving Averages (EMAs). However, the recent drop below 22,500 suggests increased volatility despite the broader bullish trend.

If the DAX breaks above 22,500, it could target the record high of 22,935. A breakout from 22,935 may bring the 23,000 level into play.

Conversely, a DAX drop below 22,350 could indicate a fall toward 22,150. A fall through 22,150 would enable the bears to target 22,000.

With the 14-day Relative Strength Index (RSI) at 62.59, the DAX could return to the record high of 22,935 before entering overbought territory (RSI higher than 70).

Final Thoughts

With global trade tensions, central bank policies, and US economic data influencing the DAX’s trajectory, staying ahead of market shifts is crucial. Monitor tariff-related developments, rate expectations, and technical indicators here to navigate volatility and capitalize on opportunities.