DAX index futures pulled back slightly on Monday morning as investors continued focusing on Deutsche Bank and Commerzbank. It was trading at €14,940, which was slightly above last week’s low of €14,472. The index remains ~4.9% below the highest point this year.
Deutsche Bank in focus
The DAX index has been in focus in the past few days as investors have remained focused on Deutsche Bank, the biggest bank in Germany. On Friday, the bank’s stock plunged by over 10% in Frankfurt as its credit default swaps (CDS) soared to their highest point in years.
A CDS is an insurance policy against adverse risks such as bankruptcies. Therefore, after the collapse of Credit Suisse, there were concerns about Deutsche Bank. The giant German bank is currently implementing a turnaround strategy, a few years after it came on the verge of collapse.
However, these concerns seem a bit unfounded because Deutsche Bank differed substantially from Credit Suisse. While Credit Suisse’s management struggled to turn around the company, Deutsche Bank is doing well and has become highly profitable.
Watch here: https://www.youtube.com/embed/KuvIpF4TTqc?feature=oembed
Commerzbank, the recent DAX index entrant, was also in the red on Friday, as its stock fell by more than 5%. Other companies that dropped sharply on Friday were Infineon, Vonovia, Siemens Energy, and Daimler Truck Holding.
There is a possibility that DAX and other European indices like FTSE MIB and CAC 40 will bounce back this week as fears of the banking sector eases. It is also worth noting that banks that collapsed in March had unique characteristics.
Credit Suisse was plagued by scandals while SVB and Signature Banks focused on risky sectors like technology and cryptocurrencies. All of these sectors have recoiled in the past few months. The key challenge for Deutsche Bank is that it has some exposure to the commercial real estate industry that I wrote about here.
DAX index forecast
DAX chart by TradingView
On the daily chart, we see that the DAX index has pulled back from its highest level this year. It has managed to move below the 25-day and 50-day exponential moving averages. The index has also dropped below the key resistance point at €15,000, which is a psychological level.
Therefore, while I believe that concerns about Deutsche Bank are unfounded, I suspect that the index will continue falling in the near term. If this happens, the next key level to watch will be at €14,000.
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