DAX Falls for the Fourth Consecutive Session
On Wednesday, the DAX extended its losses, falling by 0.19%. Following a 0.34% loss on Tuesday, the DAX ended the day at 15,741.
German Factory Orders Concern the Markets
European markets faced a downturn on Wednesday due to concerning economic indicators from Germany. A decline in German factory orders raised recession concerns. Despite the manufacturing sector making up less than 20% of the German economy, the slump raised eyebrows.
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The simultaneous contraction of the services and the manufacturing sectors remains alarming.
Eurozone retail sales declined more than expected in July, adding to the gloomy mood.
US ISM Non-Manufacturing PMI Sends the Fed A Message
Hopes of more clarity about Fed monetary policy goals faded on Wednesday. Higher-than-expected US ISM Non-Manufacturing PMI numbers for August refueled bets on one final Fed interest rate hike.
Beyond the headline PMI, a jump in new orders, prices, and employment across the services sector contributed to the more hawkish outlook.
The better-than-expected numbers and influence on Fed bets delivered a bearish end to the European session.
The Wednesday Market Movers
Commerzbank was among the worst performers for the second consecutive session, sliding 3.27%. On Tuesday, Commerzbank tumbled by 6.10% as investors responded to the news of Barclays downgrading Commerzbank to ‘underweight.’ Deutsche Bank also struggled, falling by 1.94%.
Today’s Session
It could be another tough day for the DAX. German industrial production numbers will draw interest early in the session. While investors expect another decline in production (-0.5%), the size matters.
Later in the session, Eurozone employment and GDP numbers for the second quarter will also move the dial. Considering the latest private sector PMIs, weaker growth in the second quarter would increase the fear of a euro area recession. Economists forecast Eurozone growth to slow from 1.1% to 0.6% year-over-year.
Weaker growth would ease pressure on the ECB to hike rates to tackle demand-driven inflation. A deteriorating macroeconomic environment will impact employment and consumption.
The DAX Futures was down 30 points this morning.
US Jobless Claims and the Fed in Focus
Later in the European session, US jobless claims and Fed speeches need consideration. Steady jobless claim numbers would align with the ISM Non-Manufacturing Employment figures, signaling tight labor market conditions. Economists forecast initial jobless claims to rise from 228k to 234k.
However, investors should monitor FOMC member speeches. FOMC member Harker will speak before the end of the European session. A hawkish outlook on interest rates would test buyer appetite.
Short-Term Forecast
The prospects of a final Fed rate hike and the deteriorating euro area macroeconomic environment are unfavorable for the DAX. German economic indicators expose the DAX to a gloomy outlook.
DAX Technical Indicators
Daily Chart
Despite the fourth daily loss, the DAX avoided a break below the trend line and 15,663 support level. However, the DAX remains below the 5-day EMA, sending bearish near-term price signals.
Better-than-expected German and Eurozone economic indicators would support a run at the 50-day EMA. However, US jobless claims and Fed commentary must be DAX-friendly to end the losing streak.
Better-than-expected US labor market stats and hawkish Fed chatter would support a break below the trend line and 15,663 support level.
The 14-Daily RSI reading of 45.00 allows a fall to sub-15,600 before hitting oversold territory.
4-Hourly Chart
The DAX sits below the 50-day and 200-day EMAs, sending bearish price signals. A slide in German industrial production and weaker Eurozone GDP numbers would deliver another bearish session. A DAX break below the trend line would give the bears a run at the 15,663 support level.
However, a hold above the trend line and upbeat euro area numbers would bring the 50-day EMA into play. US labor market numbers and Fed commentary must ease hawkish Fed bets for the DAX to avoid a late pullback.
The 43.57 RSI reading gives the DAX room to slide below the trend line before entering oversold territory.
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