Germany's DAX 30 Index: Most of early losses recovered, market mixed amid fears of second wave

• The DAX has clawed back much of its early losses.
• Analyst: "Recovery in risky assets is not over".
• Wirecard stock gains almost 7%.

The German benchmark index DAX recovered a large part of its early losses in the closing hour on Monday. In fact, the stock index was even up for a short period of time. The market was still concerned about a second corona wave at the beginning of the week. However, some analysts believe that a second wave is unlikely to cause the same economic damage as the first wave, especially as central banks and governments are ready to step in and intervene actively in the market again if there is another sell-off like in March.

The DAX closed down 0.3% at 11,911 points. The daily low was 11,598 points. The MDAX dropped 0.2% to 25,435 points. The TecDAX rose by 0.4% to 3,080 points.

Analyst: "Recovery in risky assets is not over"

"Although "risky" assets have pulled back sharply last week after an exceptional run, we expect their recent outperformance to resume", said Oliver Jones, Senior Markets Economist at Capital Economics in an email.

Specifically, he cited three reasons why equity markets could soon turn north again, despite last weeks massive sell-off. 

First, "the road back to pre-crisis levels of activity is likely to be a long and difficult one", but overall it looks like the global economy has already bottomed out. "Second, several elements of the policy response to the coronavirus outbreak should favour risky assets", such as the Fed and ECB's response to the corona crisis. "One aspect of this, highlighted at last weeks FOMC meeting, is that risk-free rates are likely to remain extremely low for a very long time", he added. The third reason Jones cited was that valuations of riskier asset classes are not elevated. Although earnings expectations have collapsed, this was due to the lockdowns. "It seems reasonable to assume that earnings will be much stronger from 2021 onwards, even if they do not recover all of their lost ground," he said. 

Stock markets came under massive pressure last week after the Federal Reserve said it expected a long road to complete recovery of the US economy. 

Fears of a second wave in the United States and China

Another negative factor was the rapid rise in coronavirus cases in 14 of the 21 US states, just two weeks after Memorial Day, the official start of the travel season in the US. This fueled fears of a second wave of coronavirus in the United States and weighed on investors' risk sentiment. Also China detected its highest number of daily coronavirus cases in months on Sunday, locking down parts of Beijing

"Anyone who believes that the US has won the battle against COVID is wrong, and in states where the curve has flattened recently, such as New York, it remains to be seen whether the protests have reversed the trend," said Kathy Lien of BK Asset Management. 

Among the individual companies listed on the DAX, Wirecard shares enjoyed strong demand. They climbed by 6.8 percent. On Thursday, investors' attention will be focused on the publication of the annual balance sheet of the German payment services provider. It is hoped that the auditors of Ernst & Young will issue an unlimited audit certificate. Wirecard has recently been repeatedly suspected of balance sheet manipulation.

German DAX 30 key technical levels

From a technical point of view, the chart picture has become somewhat clouded with the recent sell-off and the drop below the 200-day moving average (12,139.80). However, there is no reason to panic yet. The technical indicators such as MACD and RSI on a daily basis are still bullish, while the Stochastic RSI is oversold. Supports are at 11,859.73 (S1), 11,749.18 (S2) and 11,464.64 (100-day line). Resistance levels are at 12,139.80 (200-day moving average), 12,412.50 (R2) and 12,523.05 (R3).