DAX Index outlook: Top 3 news to move German stocks this week

The DAX Index has moved sideways in the past few weeks as investors reacted to the recent German earnings season. It ended last week at 26,046 points, slightly higher than last week’s low of 25,720. This article looks at some of the top news events that will drive German stocks this week.

Germany AfD election victory

A key catalyst that will have a major impact on the DAX Index is the weekend elections that happened during the weekend. The main aspect is that Alternative for Germany  (AfD), a far-right party, won the election in the eastern state of Saxony-Anhalt with a 44.5% share of the vote. In contrast, the Christian Democrats fell from 37.1% in 2021 to 18.5%.

The party won 39 of the 83 seats in parliament, short of the 42 it needs to have an absolute majority, meaning that it will need to form a coalition. Analysts believe that it may form a deal with the far-left Sahra Wagenknecht Alliance Party.

The ongoing AfD surge comes as many people in Germany are concerned about the country’s direction. They have seen immigration soar in the country, while the economic growth has slowed in the past few months. 

Most importantly, many Germans have seen several companies become disrupted. A good example of this is Volkswagen, which announced that it will lay off 50,000 jobs as competition rises. As Chinese companies become more competitive, there are concerns that the company, together with other German automakers, will struggle to compete. 

These political events will have an impact on German stocks as investors assess any new policy changes.

ECB interest rate decision

The DAX Index will also react to the upcoming European Central Bank (ECB) interest rate decision on Thursday. This will be a crucial decision because it comes at a time when European inflation is rising amid the ongoing US-Iran war.

As a result, market participants expect the bank to hike interest rates by 25 basis points to 2.65%. Polymarket and Kalshi odds of a rate hike have jumped to over 90%.

The ECB is hiking rates because of the elevated inflation in the country and the fact that the country’s bond yields have remained at an elevated level. Data shows that the ten-year yield jumped to 3.4% last week before pulling back to 3.33%.

US inflation report

The DAX Index will also react to the upcoming US consumer inflation report. Economists polled by Reuters expect the upcoming report to show that US inflation remained above the Federal Reserve’s 2% target in August this year.

These numbers will come a week after the US published the strong nonfarm payrolls report, which showed that the economy added over 162k jobs. A stronger-than-expected inflation report will push the Federal Reserve to hike interest rates as soon as next week. 

Trump has warned that he will seek to undermine trade with countries that the US has trade deficits with. Germany had a surplus of over $72 billion with the US last year, meaning that it would be targeted. Such a move would have an impact on German stocks, especially the already-struggling automakers.