DAX Slips as German Economic Woes Deepen
The DAX slipped by 0.1% on Monday. Following a 0.67% loss on Friday, the DAX ended the day at 15,825.
German Exports Fall as Sentiment Worsens
Germany’s trade surplus narrowed sharply in July. Imports jumped, while exports declined. Trade terms with non-EU countries affirmed the weak global demand environment.
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The Sentix Index flashed warning signals at -21.5 as the services sector stumbles into contractionary territory.
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US Labor Day Holiday Left the ECB to Stand Out
The US markets were closed for Labor Day on Monday. A deteriorating macroeconomic environment and an ECB President committed to tackling elevated inflation left the DAX in negative territory.
ECB President Lagarde gave no surprises despite the worsening macroeconomic backdrop. Dissent may creep into the camp.
The Monday Market Movers
RWE AG was the worst performer, falling 2.01%. There was no adverse news to influence. However, sentiment has not improved since the Wednesday sell-off on Orsted impairment news.
Auto stocks were in recovery, with dip buyers returning after the UBS-fueled Friday sell-off.
Mercedes Benz Group (+0.97%), Porsche (+0.39%), BMW (+0.30%), and Continental (+0.09%) made gains, albeit modestly. However, the UBS downgrade continued to resonate for Volkswagen, which slipped by 0.02%.
Today’s Session
Euro area services PMIs will draw interest. With the services sector the main contributor to the Eurozone economy, weaker figures will flash more economic warnings. According to preliminary figures, the German services PMI fell from 52.3 to 47.3. With the manufacturing PMI at sub-40, a downward revision would impact investor sentiment.
However, investors must consider a busy session for the ECB. ECB President Christine Lagarde kickstarts the session. The ECB President shows no intent on shifting focus away from inflation to the deteriorating macroeconomic environment. A beyond-September dovish policy outlook would surprise the markets.
ECB Executive Board Members Edouard Fernandez-Bollo, Luis de Guindos, and Isabel Schnabel will draw interest. Considering the macroeconomic environment, the doves may gain more voice.
The DAX Futures was down 31 points this morning.
US Factory Orders and Early Cracks?
The US markets reopen after the Labor Day holiday, with US factory orders in focus. While the US manufacturing sector accounts for less than 30% of the US economy, the DAX may not handle more bad news. Economists forecast US factory orders to fall by 2.5%.
However, Fed commentary also needs consideration. While no FOMC members are on the calendar to speak, comments to the media will influence. Hawkish chatter would surprise the markets.
Short-Term Forecast
Euro area indicators suggest a recession, with the ECB focused on meeting inflation targets. Changing sentiment among ECB members might prompt a policy shift. Until then, the DAX faces more downside risk.
DAX Technical Indicators
Daily Chart
The DAX failed to break out from the 50-day EMA this morning, leaving the DAX under pressure. Failure to move through the 50-day EMA leaves the 15,663 support level and the trend line in play. However, the 15,663 support level is confluent with the trend line, signaling strong support at 15,660.
Weaker-than-expected service PMI numbers will give the bears a run at the 15,663 support level and trend line. However, hawkish ECB commentary would support a breakout from the 50-day EMA to target the 16,007 resistance level.
The 14-Daily RSI reading of 48.51 leaves the DAX with room to fall through the trend line and support level before entering oversold territory.
4-Hourly Chart
The DAX sits below the 50-day and 200-day EMAs, sending bearish price signals. A more marked decline in the German and Eurozone services PMIs would bring the trend line and support at 15,663 into view.
However, investors must consider ECB commentary throughout the session. Upward revisions to the services PMIs would support a move through the 50-day EMA to target the 200-day EMA.
The 49.16 RSI reading shows the DAX has room to break below the trend line before entering oversold territory.
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