The trend of the German DAX is bearish to choppy and I see three explanations for the current situation.

Firstly, the lack of a strong stimulus boost at the latest ECB meeting, secondly, higher U.S. yields, and thirdly, the prospects of lower U.S. growth.

The DAX is capped by the December 7 high of 10,993 and it may reach last week’s low of 10,122. While a break to 10,993 may trigger a Christmas rally to 11,430.

Macro Drivers

The lack of a boost to the ECB stimulus shifted the focus to economic growth, and the performance of the DAX 30 index constituents. Higher economic growth is now needed to justify a rising DAX. Something I expect to pick up in 2016 given the leading indicators for the Eurozone. However, in the U.S. growth looks to be slowing down. The latest U.S. GDP reading was 2.82% YoY and PMI/ISM/Industrial production data since then suggests that U.S. growth is slowing down. U.S. Industrial production alone suggests GDP should be near 1.16% YoY in November, which is a significant decline from the last official reading. ISM/PMI manufacturing readings are also very soft, while the Service sector readings have softened from their prior strong readings.

I would guess that traders would like to see stabilization in the PMI/ISM readings before they turn bullish again and support stock markets.

A new factor to take into consideration is short-term U.S. yields. They have rallied sharply as the Fed hiked rates and may still gain as the FED itself expects 4 rate hikes in 2016, while the OIS rates (the markets) projects 2 hikes in 2016. U.S. inflation is also turning firmer which supports higher yields. This lowers the attractiveness of holding stocks over bonds as it increases the financing costs of firms and consumers. This makes growth even more important for traders in the months ahead.

With this in mind, I assume the DAX will remain soft in the near term and will look for clues that growth is picking up or traders focusing on other drivers.