DAX index cheers Deutsche Bank earnings but risks remain

German stocks drifted upwards on Wednesday after the relatively strong financial results by Deutsche Bank. The DAX index, which tracks the biggest blue chip companies in Germany, rose to €14,800, a few points above this week’s low of €14,642.

Deutsche Bank earnings

Deutsche Bank has had a great turnaround in the past few years. The company, which almost collapsed a few years ago, has transitioned to become one of the most profitable in the industry.

Results published on Wednesday revealed that its profits in the past nine months jumped tp €5 billion as revenues jumped by 6% to €22.2 billion. This growth happened as interest rates in Europe jumped to the highest level on record.

Further, Deutsche Bank’s post-tax profits jumped to €3.5 billion as inflows in its Private Bank and Asset Management soared to €39 billion. As a result, the Deustche Bank stock price soared by over 6%. The shares have soared by over 32% from its lowest level this year.

Despite all this, German stocks are still going through major headwinds. For one, its automakers like Volkswagen, BMW, and Mercedes Benz are operating in a new normal. While these companies dominated the auto industry for ages, new competition is coming in.

Volkswagen is more vulnerable because of its high market share in China. The Chinese market is now being dominated by Chinese brands like Byd, Li Auto, and Nio. While the company has a partnership with Xpeng, it will struggle to dominate the way it used to in the past.

These German automakers are also being priced out in their European market by cheap – but equally good – Chinese companies. Earlier this month, European authorities announced an investigation into Chinese EVs. The investigation could lead to reprisals by Chinese authorities.

Other German companies are also facing major headwinds as the cost of doing business continues to rise. As a result, business confidence in the region has continued falling. Companies and individuals are also struggling as interest rates rise. As we wrote earlier on, the European M2 money supply dropped again in September.

DAX index forecast

DAX chart by TradingView

In my recent article on the German DAX, I warned that the index would have a bearish breakout. I cited the rising wedge pattern, which is one of the most bearish signs. The shares have now crashed below the lower side of the wedge pattern.

At the same time, the shares have slipped below the key support at €15,503, the lowest level in July and August. It has also moved below the 50-day and 100-day moving averages while the Relative Strength Index (RSI) has retreated.

Therefore, the outlook for the stock is bearish, with the next level to watch being at €14,476, the lowest level on March 20th.