DAX index set to see recovery continue despite Wirecard departure

The German blue-chip index closed marginally lower on Thursday, but the benchmark is likely to continue to its march higher despite Wirecard being removed after becoming insolvent.

The DAX index closed 0.5% lower on Thursday to 12,993.71 points. However, the German benchmark is expected to continue its march upward despite Wirecard being removed from the index after collapsing into insolvency in June.

German blue-chip stocks struggled on Thursday, after four days of consecutive gains, with the US government’s announcement that it will keep 15% tariffs on planes and 25% tariffs on other EU goods hitting Europe’s largest exporter hard.

But overall, German equities remain resilient, with the DAX managing to shrug off news of Britain’s worst recession since records began earlier this week. Investors also appear to be happy to put the first six months of 2020 firmly behind them, choosing to focus their attention on the second half of the year after UK corporate earnings data proved relatively resilient.

It is worth nothing that DAX futures are down marginally at the time of publication, suggesting that the index could open lower on Friday morning.

DAX index: technical analysis

The DAX pullback seen overnight has been shallow in nature, pointing towards another move higher looking likely before long, according to Josh Mahony, senior market analyst at IG.

‘With price rising marginally through the 76.4% Fibonacci retracement, another leg higher from here would go a long way to negating the idea that we are in a bearish retracement phase,’ Mahony said. ‘The rising wedge pattern also adds to that possibility.’

‘However, with the overnight pullback proving minimal in nature, another leg higher could take us closer to a wider bullish breakout through 13,315,’ he added. ‘Ultimately, we would need to see the 12,807 level broken to negate this short-term uptrend in play.’

Wirecard finally cut from the DAX index after insolvency

The insolvent German payments company, Wirecard, will finally be removed the DAX index this month after the exchange operator Deutsche Boerse amended its selection rules.

Deutsche Boerse announced on Thursday that from 21 August, a rule change will be implemented that will allow it to remove insolvent companies from the DAX with just two trading days’ notice. The exchange operator noted that the rule change will apply to Wirecard, ‘given the current situation’.

Wirecard was once the darling of European fintech, only for it to collapse into insolvency in June after it was unable to locate €1.9 billion and admitted that the cash likely did ‘not exist’.

The action taken by Deutsche Boerse comes just weeks away from its quarterly index review which is scheduled to take place on 3 September.

Wirecard first became a member of the DAX index in 2018, replacing Commerzbank. Online food delivery service, Delivery Hero, is expected to join the benchmark after Wirecard is removed.

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