Olaf Scholz, a former German finance minister, took over as the new German chancellor on Wednesday replacing Angela Merkel’s Christian Democrats who ruled for the last 16 years. He was approved by the Bundestag, a German parliament, with 395 votes out of 736.
The major German DAX stock index reacted calmly with a slight correction of 0.4% on Wednesday afternoon after a steep rise on Tuesday by 2.8%.
Mr. Scholz is known for his sterling reputation as a competent executive and a professional. He is a strong advocate for supporting business and supported the billions that went towards the government aid package during the pandemic. The new German government has many plans in the pipeline including “green” energy expansion. Robert Habeck, the first-ever Green minister within the economy, has said that climate protection would lead Germany towards greater support of SME’s, renewable energy, and the expansion of the country’s ageing electricity grid. Annalena Baerbock, a Green party co-leader who will become Germany's first female foreign minister, has signalled a more assertive stance towards China and Russia, putting respect for human rights and the rule of law at the center of German diplomacy.
Germany as a country and its policies will certainly go through transformations. But the scale of such changes is hard to envision right now. As for the German stock market, it has clearly been signalling sideway dynamics since April 2021. Even the DAX’s new record in November at 16,920.19 points has not changed this nine-month trend.
Technically, a triangle uncertainty pattern is forming in the German stock market with a support for the DAX index at 14,830-14,870 points and an upward-sideling resistance that is crossing the 16,300-16,330 landmark. Sooner or later the DAX index will leave the pattern with a likely upside spike. This must be confirmed as the current triangle pattern suggests uncertainty. In case of an upside swing, the growth potential of the pattern is within 1400-1450 points or 9%, which means a target of 17,800 points.
Alternatively, if the index drops below the support at 14,830-14,870 points, we may have a downward correction to 13,400-13,500 points.