DE30/EUR

The Germany 30 or DAX 30 has gained more than 2% year to date, rising more than 7% in the final quarter of the year. German stocks had struggled during the second quarter due to lockdowns amid the coronavirus outbreak. While stocks recovered in the third quarter, Frankfurt’s DAX 30 came under pressure again with a seeming stalemate in Brexit talks and a delay in the US stimulus package.

With a Brexit trade deal now signed and the US approval of the new covid-19 relief package, there could be upside to the DAX 30 index in the first quarter of 2021. Also, the rollout of the BioNTech-Pfizer coronavirus vaccine in Germany could further lift investor sentiment.

In October, Germany reported the strongest growth in retail sales since April 2018, as the country recovered from the covid-19 crisis. Retail sales grew 2.6% in October following a 1.9% decline in September. With another strain of the virus being detected in the UK and various regions reimplementing lockdowns, Germany’s retail sales are expected to decline by 2.2% in November.

Global markets generally become volatile on the release of US jobs data. With covid-19 cases rising sharply, a significant decline in jobs growth is expected. The US economy created 245,000 jobs in October and just 190,000 jobs are likely to be added in December.

In November, consumer prices in Germany declined the most since January 2015, falling 0.3% year-over-year. The country recorded its fourth month of deflation since the start of the year, following the temporary reduction in VAT from July 1 to support the economy from the covid-19 crisis. For December, consumer prices are likely to decline 0.3%.

The ZEW Indicator of Economic Sentiment improved by 16 points to a reading of 55 in December with optimism around covid-19 vaccines providing the boost. For January, the index is expected to improve further to a reading of 60.

The European Central Bank maintained its main refinancing rate at 0% while the deposit rate was held at a record low -0.5%. However, during its December policy meeting, the ECB announced the expansion of its Pandemic Emergency Purchase Programme by another €500 billion, extending the same to at least the end of March 2022, to provide support to the economy. The central bank is expected to keep rates unchanged in 2021.

Germany's GDP contracted by 4% year-over-year in the third quarter, following a record contraction of 11.3% in the prior three-month period. The country’s economy is likely to contract 5.8% in 2020, with a 4.6% year-over-year decline expected for the fourth quarter.

Germany will begin polls in autumn 2021 to elect a new federal parliament and government, bringing an end to Chancellor Angela Merkel’s tenure of 16 years.

Any developments in the covid-19 vaccine rollout will influence market movements.