Jun 01, 2023

A collection of headwinds could hurt German stocks.

GER30 – Weekly Chart

GER30 – Weekly Chart

The German stock market has seen a rejection at the 16,300 level with the potential for a longer-term high. The same level proved to be the top for the market in 2021. 

German stocks could see overseas investment reverse as the euro struggles with economic woes. The German economy surprised analysts by entering a recession this month. 

That could see the euro pull back, and the United States is also seeing a debt ceiling deal come close, which could cause a rally in the US dollar. A weaker dollar has been a driving factor in European stock strength.

China’s slower recovery has also weighed on the German market, and data out this morning showed the manufacturing sector slowing. Some easing of price pressures was a positive for the European market, with French inflation cooling more than expected in May, while German state data also saw less inflation pressure.

German Stocks Forecast

German inflation slowed to 6.1% in May following several months of declines, despite a sharp increase in food prices of nearly 15% for Europe’s largest economy. Preliminary figures said the annual inflation rate was lower than the 7.2% in April. That could ease fears of further monetary tightening from the European Central Bank. 

According to the Federal Statistical Office, Germany’s gross domestic product was 0.3 lower from January to March. The figures were a blow to Germany’s government, which had doubled its growth forecast for the year only weeks ago after a feared winter energy crunch did not occur.

Investment had grown in the first three months of the year, and the German economy is expected to grow in the second quarter. However, overseas investors may feel that a weakening euro is a time to cash out, and the GER30 is at risk from that strong resistance level. The market hit a new all-time high last week but has since slipped back.

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