German Blue-Chips Stumble as Tech Giant and Autos Weigh on Sentiment

German DAX index ends volatile week lower, dragged down by a 7% sell-off in heavyweight SAP. Geopolitical tensions and mixed inflation data add pressure, while technicals signal overbought conditions.

The German DAX index closed a volatile week on a sour note, dragged lower by a sharp sell-off in its largest constituent. Despite early gains fueled by geopolitical optimism and favorable inflation data, the benchmark ended Friday's session at 23,804 points, firmly below the psychologically significant 24,000 level.

The session's defining move came from software behemoth SAP, whose shares plummeted over 7% to their lowest level since January 2024. CEO Christian Klein's warning of "short-term pain" during the company's ongoing AI transformation spooked investors. Due to its heavy weighting, the plunge in SAP single-handedly pulled the broader index down, highlighting the DAX's structural vulnerability to swings in its top stocks.

This corporate drama unfolded against a tense geopolitical backdrop. While a ceasefire between the US and Iran held, the critical Strait of Hormus remained closed, keeping energy supply fears alive. Some relief emerged from Ukraine, where negotiator Kyrylo Budanow suggested a peace deal with Russia could arrive sooner than anticipated. This news pressured defense stocks, though the overall market impact was overshadowed by SAP's decline.

Inflation data provided a brief early boost. US core inflation for March came in at 2.6%, slightly below the expected 2.7%. However, this was offset by the prior day's PCE indicator reading of 3.0%, which remains well above the Federal Reserve's target, pushing expectations for interest rate cuts further into the future.

The automotive sector added to the negative momentum. Porsche reported a 15% drop in first-quarter deliveries to approximately 61,000 vehicles, while Daimler Truck saw deliveries fall 9%. In a significant move, Volkswagen halted US production of its ID.4 electric model due to weak demand.

Not all news was negative. Lufthansa shares gained 2.9% after its City Airlines unit and the Verdi union reached a wage agreement for flight personnel following months of negotiations. Defensive stocks also found buyers, with Continental advancing 2.35% and Adidas adding 1.40% after Citigroup reaffirmed a buy rating. MTU Aero Engines, however, dipped 0.3% after UBS significantly lowered its price target for the manufacturer.

From a technical perspective, the failed test of 24,000 points confirms that level as a key resistance zone, which aligns with the convergence of the 50- and 200-day moving averages. The index's Relative Strength Index (RSI) reading of 83.8 signals an overbought condition, suggesting further consolidation is possible. Immediate support is now seen around 23,700 points, with a breach potentially opening a path toward 23,500. For a sustained breakout, analysts say the index needs stabilization in its heavyweight stocks and a de-escalation in energy prices.

Looking ahead, the market's focus will split between corporate earnings and diplomacy. The US reporting season kicks off with results from JPMorgan and Goldman Sachs, which typically influence European financial stocks. Concurrently, traders will watch weekend talks between Washington and Tehran, as any progress toward reopening the Strait of Hormus could provide a crucial lift for market sentiment.