I've been pretty bullish on the S&P 500 and this was met with some criticism here on Seeking Alpha. Anyway, it's not just the S&P that has me excited, but also the German DAX (DAX). As of late, speculators have been switching their focus from Europe to the U.S. with an occasional glance at what is happening in the third largest economy on the planet.
Germany leading growth in the eurozone
Germany is the three hundred pound gorilla in the eurozone. While it is true that GDP dropped in Germany, the thing that eurozone investors will find encouraging is the positive statements coming out of the Bundesbank. The Bundesbank and German ministers have estimated that Germany will grow over 0.5% in the first quarter of 2013.
Data-heavy week worked out well
Last week we had a ton of data from Germany and overall it has been impressive.
The ZEW Survey
The ZEW Survey that measures economic sentiment in the country was positive and it beat forecasts that had the value at 35. The actual value was up to 48.2 points in February (two-year high) from a previous 31.5 in January and this shows a very healthy German economy.
The ZEW Survey is a reliable indicator because it takes into consideration the opinions of 275 professional investors and financial analysts regarding the medium term economic outlook of the country.
The German CPI for the month of January was 1.7% that was a 0.5 point decline from December 2012. Nonetheless, inflation has been rising year over year despite the pull back recently; preliminary CPI for this month is 1.6%. The eurozone CPI was out today and it held steady at 2%. The buying power of the Euro stays the same when the CPI is unchanged and this has important implications as the Central Bank will then choose to do nothing to the interest rate.
German PPI rose 0.8% in January which beat market forecasts. Higher PPI values are a double-edged sword. On the one hand, you get higher profits generated by production sector firms due to the higher prices. On the other hand, these higher prices have to be passed on to the consumer.
Purchasing Managers' Index [PMI]
Germany has been driving the recovery of the eurozone and anything negative in the country's macro data makes investors anxious. Kind of like the decline in the German PPI from 54.4 in January to 52.7 in February. The eurozone PMI was also down to 47.3 from 48.6 and this dampened growth efforts in the single currency zone after two consecutive months of upward movement in the PMI.
German GDP has tapered off in the last quarter of 2012
Eurozone GPD figures have generally been dropping the past few weeks and the EU's largest economy also suffered a 0.6% loss in its recent quarter. However, investors should not fret too much as exports will pick up again and growth will be seen for the first quarter of 2013.
Source: FX Empire
A chartist will be able to deduce a shooting star formation on the above DAX candlestick chart. A close observation of the monthly chart on MarketWatch reveals that the long term support line was reached in the week 02/11 - 02/18 2013. This line formed the neckline of a reversal with rising U.S. equities and short term global economic stability providing the impetus that brought the DAX back to the record highs it hovered at a month ago.
Bullish outlook for major global indices
The FOMC minutes last week had numerous encouraging statements being made like "unemployment falling", "fewer downside risks", etc. This is cause for hope as the S&P 500 bounce will persist in the near term; although, declines are a strong possibility in the long term.
There is one index that will continue to show strong signs; the Nikkei shot up 2.71% during trading today and we can expect more of the same in the coming weeks as it leads Asian markets. It has already broken long term resistance and the Japanese government stepping up efforts to devalue the Yen will continue to send it to record high levels. Japanese exports are up and profits for Japanese companies will continue to climb.
The extremely bullish fact about the Nikkei is that it has a long way to go (over half the way) to reach the pre-2008 level; something a lot of other global indices have managed to reach already. This translates to a lot of room for growth for the Japanese index and it will drive world markets including the DAX.
Bottom line: Recent Weakness in the DAX brings up a bullish opportunity
I am going long on a few German ETFs. The iShares MSCI Germany Index ETF (EWG) tracks large cap German stocks like Siemens (SI), Bayer (OTC:BAYZF) and SAP AG (SAP) and should be a good addition to your portfolio along with the First Trust Germany AlphaDEX (FGM). I know the eurozone CPI was unchanged but the DAX has advanced 56 points and the bullish trend should persist. This opens the door for some intra-day trading. The other EU stock markets are also up; EURO STOXX (FEZ) added 0.4%, London's FTSE 100 (BCYIF) rose 0.3% and France's CAC 40 eased up 0.4%.