DAX 40 nears record highs as German economy anticipates growth under new leadership

Mixed market reactions across European indices

European equity markets started the new week with mixed results. The Germany 40 (DAX 40) rose by over 1%, while the France 40 (CAC 40) fell by 0.6%. Meanwhile, London and the FTSE 100 enjoyed a long weekend due to the May Day public holiday.

German political landscape shifts with new coalition

In Germany, the conservative-led coalition finalised its agreement, paving the way for Christian Democratic Union (CDU) leader Friedrich Merz to be sworn in as chancellor later today, following the German election in late February.

The coalition between the CDU/Christian Social Union (CSU) and the Social Democratic Party (SPD) plans to stimulate economic growth, increase defence spending, tighten migration policies, and modernise infrastructure.

Economic factors driving market movements

The prospect of stronger economic growth along with easing concerns over United States (US) dollar tariffs, particularly following reports of potential relief for the auto industry, has contributed to the revival of the German stock market. Notably, the rally has occurred despite first quarter (Q1) 2025 gross domestic product (GDP) data last week showing the German economy contracted by 0.2% year-on-year (YoY), marking the seventh consecutive quarter of recession.

In contrast, the most recent GDP report in the United Kingdom (UK) showed expansion of 0.6% in the three months to February 2025, the strongest increase since the three months leading to May 2024. This, along with the high probability of another Bank of England (BoE) 25 basis point (bp) interest rate cut this week, has been behind the FTSE's record 15 consecutive days of gains.

FTSE 100 technical analysis

From its record high of 8908, the FTSE fell 1364 points to a low of 7544 in early April before its impressive rebound, which at Friday's high took it to within 286 points or approximately 3.3% below its record 8908 high of March this year.

We do not currently hold a high-conviction view of what comes next in the medium term. However, in the short term, and given the overbought nature of the rally, there is a good chance of a pullback early this week. Dip buyers will likely be operating near the 200-day moving average (MA) at 8351, and provided it holds, they will be looking for a retest and break of the 8908 record high.

FTSE 100 daily chart

DAX 40 technical analysis

From its mid-March double top at 23,746, the DAX fell 4987 points to a low of 18,489 in early April, before its impressive rebound, which at last night's high took it to within 112 points, less than 0.5% from its record 23,476 high of March this year.

We don't currently hold a high conviction view of what comes next in the medium term.

However, in the short term, and given the magnitude of the rally over the past month, it seems unlikely it would come all this way without making a fresh record high before a more significant pullback.

DAX 40 daily chart

• _{Source: TradingView. The figures stated are as of 6 May 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}