Focus Shifts to German GDP: Key Insights for Investors

As we look toward finalized Q1 GDP numbers for Germany, set to come out on May 23, it’s crucial to recognize how this data could influence market sentiment. Preliminary reports indicate the German economy expanded by 0.2% quarter-on-quarter in Q1 2025, bouncing back from a contraction of 0.2% in Q4 2024. This growth could alleviate recession fears, potentially driving demand for DAX-listed stocks.

Conversely, a weaker GDP reading might reignite speculation about an approaching recession, which could dampen demand for German stocks. Investors should also keep an eye on the European Central Bank (ECB) discussions. Insights from ECB Chief Economist Philip Lane could be particularly pivotal regarding future rate changes. Hawkish remarks may put pressure on the DAX, while a more dovish stance could provide a much-needed lift.

Wall Street: A Mixed Bag After Midweek Volatility

Wall Street has exhibited mixed signals as of late, with the Nasdaq Composite Index gaining 0.28% on May 22, while the Dow Jones remained flat and the S&P 500 dipped slightly by 0.04%. Declining Treasury yields injected some optimism into the market, yet lingering concerns about inflation and tariffs added a layer of complexity.

On a brighter note, improving services sector data, particularly from the S&P Global Services PMI—which jumped from 50.8 in April to 52.3 in May—has bolstered demand for German-listed stocks. While the 10-year U.S. Treasury yields spiked at 4.627% before retracing to 4.529%, this decline supports risk sentiment. Still, the unresolved landscape regarding tariffs and its fallout on inflation remains a headwind.

Fed Rhetoric: A Major Influence on Market Direction

As we move forward, commentary from Federal Reserve officials will be paramount. Their commentary on inflation, labor markets, and potential rate cuts could significantly sway market sentiment. Investors should be cautious; any warnings about premature rate cuts amid tariff uncertainties could dampen confidence, affecting the DAX negatively. Alternatively, supportive comments for a Fed rate cut this Q3 could spark a resurgence in risk appetite.

Trade developments are also vital to monitor, especially considering their potential influence on the DAX.

DAX Outlook: What Lies Ahead?

The short-term trajectory of the DAX will largely depend on trade dynamics, economic data, and central bank policies. Here are some potential futures for the DAX:

• Bullish Case: Eased trade tensions coupled with positive German GDP data and dovish signals from the ECB could propel the DAX toward the 24,500 mark.
• Bearish Case: Conversely, increased trade friction or disappointing GDP figures could drag the DAX down toward 23,500.

As of Friday morning, DAX futures were up by 24 points, while the Nasdaq 100 mini slipped by 1 point, hinting at a cautious trading session ahead.

Technical Setup: Indicators of Cautious Optimism

Despite recent fluctuations, the DAX’s position above both the 50-day and 200-day Exponential Moving Averages (EMA) suggests a bullish bias. Here’s what to watch from a technical perspective:

• Upside Target: A breach above the May 21 high of 24,152 could open the door to 24,350. A sustained rise beyond this level may enable bulls to target 24,500.
• Downside Risk: Conversely, a decline below 23,750 could expose the DAX to further downside, with critical support at 23,500 and 23,000.

Moreover, the 14-day Relative Strength Index (RSI) is currently at 68.61, indicating that while the DAX could reach 24,152, any further upside may push it into overbought territory (RSI > 70).

By remaining informed and vigilant, members of the Extreme Investor Network can navigate these fluctuations effectively, positioning themselves to capitalize on opportunities as they arise. Stay tuned for further updates as we track these pivotal developments!