DAX is having the best month in 11 years despite virus concerns

DAX is having the best month in 11 years despite virus concerns
Written by:
Michael Harris
November 27, 2020
  • Germany’s parliamentary budget committee agrees to double 2021 borrowing to nearly 180 billion euros
  • The country projects its economy to fall by a calendar-adjusted 5.9% this year and recover by 4.4% next year
  • DAX Index is trading over 15% higher in November to record the best month since 2009

DAX Index is on its way to record the best month since April 2009 despite fresh concerns over the surging number of new Covid-19 infections in Europe. 

Fundamental analysis: Record borrowing amid health crisis

German lawmakers said the country intends to double the borrowing it initially planned for 2021 to support businesses amid the second wave of the coronavirus pandemic. 

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Germany’s parliamentary budget committee came to an agreement to double the borrowing to nearly 180 billion euros ($215 billion) for the next year, marking the second-biggest net borrowing figure since the end of World War II. 

“The high debt is necessary to bring our country safely through the pandemic,” said lawmaker Eckhardt Rehberg, of Chancellor Angela Merkel’s Christian Democrats (CDU. “We must once again make use of the exemption rule from the debt brake.”

The German constitution limits the issuance of new debt by restricting the federal budget deficit to 0.35% of economic output, however, the government suspended it in 2020 as a result of the Covid-19 outbreak. The newly-agreed debt of 179.82 billion euros for next year is nearly double than the initially agreed 96 billion euros.  

Even before this, Germany took a number of unprecedented measures to support businesses to fight the crisis and keep the economy from contracting. 

The country also decided to extend its partial nationwide lockdown and keep restaurants, bars and entertainment facilities closed until December 20. The financial aid for closed businesses will also be extended, said German government. 

“The new borrowing is the right thing to do. You cannot save your way through a crisis,” said lawmaker Sven-Christian Kindler.

Furthermore, Germany increased the financial reserve for quantifiable costs to 35 billion euros to fight the pandemic, compared to the previous draft of 15 billion.   

The country projected its economy to contract by a calendar-adjusted 5.9% this year and recover by 4.4% next year.

Technical analysis: DAX up over 15% in November

DAX Index is trading over 15% higher in November as the buyers attempt to force a close above 13,300. This would translate into the best month since April 2009 when equities recovered from the global financial crisis. 

DAX Index daily chart (TradingView)

DAX price is also testing the key short-term resistance at 13,300, in the context of the descending trend line. On the downside, any pullback is likely to find support in 12,850 where the 100-DMA trades. 

Summary

Germany plans to double the borrowing it had planned for the next year to nearly 180 billion euros in an effort to aid businesses amid the second wave of COVID-19.