Idea Of The Day: Dax Versus FTSE 100
Kathleen Brooks | Sep 19, 2017 14:59
What: There has been an interesting divergence of late between the performance of the Dax and the FTSE 100. The two have diverged sharply in recent days, as you can see in the chart below, with the Dax surging ahead, while the FTSE 100 has been in the doldrums.
We believe that there are a couple of reasons for this, and that we may continue to see this outperformance by the German index versus the UK index for the short to medium term.
- Firstly, we think that the outcome of the German election could be good news for the Dax, read our German election analysis.
- Secondly, we believe that the recent decline in EUR/GBP and in the euro more broadly, is also Dax supportive at the expense of the FTSE 100.
If Theresa May delivers a well-received speech on Brexit on Friday, one that lays out the government’s plans for a transition deal, then her “soft” Brexit approach could be good news for the pound, weighing further on EUR/GBP. Since the Dax and the euro have a negative correlation, a weaker euro could see the DAX rise.
Political risk: with the German elections out of the way from next week, and the UK still mired in Brexit negotiations, the political premium could swing towards the UK and weigh on the FTSE 100 relative to the Dax for the foreseeable future.
How: we expect the Dax to continue to outperform the FTSE 100 for the rest of this week, due to optimism surrounding the German election and a potential weaker FTSE 100 on the back of a stronger pound and rising Brexit risk ahead of May’s speech in Florence on Friday.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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