The German Dax index opened the trading day on Friday with a cautious start. By 9:30 am, the leading index had been calculated at around 22,320 points, only slightly above the closing level of the previous day.
“The short-term development of the Dax will likely follow the political framework after the election” said Jochen Stanzl, chief market analyst at CMC Markets. “If the market manages to hold above 22,100 points in the coming week, the rally could continue. If it closes below that by the end of the month, we could expect a phase with weaker prices.”
While the ongoing rally is largely driven by factors unrelated to German federal politics, international earnings of Dax-listed companies and the hope for a more business-friendly government also play a role. “If this expectation is disappointed, a downturn is threatened. Many investors are sitting on high profits and may reduce their positions after the election. The correction in this week was a first warning sign.”
“Depending on the coalition scenario, market reactions will vary. A grand coalition, which is currently the favorite among investors, signaling stability and continuity, could stabilize the Dax, while a coalition with the Greens or a three-party alliance could bring more uncertainty and increased volatility.”
“Ultimately, it shows that while political factors can increase short-term volatility, the long-term performance of the Dax is primarily determined by the international competitiveness of the listed companies – as political stock markets, after all, have short legs. The driving forces in the Dax are profiting from business outside of Germany, shining with pricing power and positive industry trends. Export is boosted by the weak euro. China, which is important for German exports, could experience a rebound in the second quarter of 2025.”
“However, investors are pinning great hopes on the new government. There is hope that the new government will set growth impulses, especially if the Union parties suffer a strong defeat. As for whether the new government can arrange with Donald Trump, there are, however, great doubts after the recent events” Stanzl said.
The European common currency was slightly weaker on Friday morning, with one euro costing around 1.0490 US dollars and one dollar being worth 0.9533 euros.