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European stocks plunged on Thursday with most benchmark indices trading lower. Germany’s DAX30 index was not an exception. The index looks set to finish lower for a third consecutive session against the background of rising expectations of a U.S rate increase in December and a drop in Chinese trade activity that triggered concerns over global growth.
The case for a rate hike by the end of this year has been strengthened after the release of the FOMC minutes published yesterday. In the minutes released, policymakers described their September decision to leave interest rates unchanged as a “close call”. According to the CME’s Fed Watch tool, markets are pricing an almost 70% probability of a rate increase at the last FED meeting of this year in December.
According to China’s General Administration Customs, the country’s exports diminished by 10% in September from a year earlier while imports shrank 1.9%. Weaker demand for Chinese goods was seen both at home and abroad, including in the U.S., Europe and much of Asia.
Under the influence of upcoming U.S policy tightening and signs of economic fatigue in China, global stocks including German shares declined sharply. The DAX30 has tumbled 1.56% on the day, so far. Most of its constituents are trading lower currently.
Banks topped the list of losers with shares of the two biggest German lenders Deutsche Bank and Commerzbank losing more than 3% each. Besides the ongoing negotiation with the U.S related to the probe tied to its sale of residential mortgage-backed securities, Deutsche Bank will have to pay another $9.5 million penalty to settle civil charges that it failed to properly safeguard material non-public information generated by its research analysts and published an improper research report.
Airlines and carmakers also dropped with Deutsche Lufthansa down 2.5% and Volkswagen falling 2.2% in Frankfurt. Deutsche Lufthansa AG was downgraded by Zacks Investment Research from a “buy” rating to a “strong sell” rating in a research report issued on Tuesday.
Shares of Germany’s largest housing association Vonovia, and pharmaceutical company Merck are only two issues that have been in positive territory today.
Fig: DAX30 H4 Technical Chart
DAX30 created a big gap down on the opening on Thursday and continues to remain on track to decline towards the 23.6% retracement level at 10306.58. The index, which had been supported by the two MAs placed below the price action since late September, has now fallen below these zones of support. The fall has also pushed the market into bear territory. The DAX is very likely to fall deeper to test the 23.6% level.
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