The DAX gained 0.97% on Thursday. Reversing a 0.39% loss from Wednesday, the DAX ended the session at 15,805.
ECB Fails to Send the DAX into the Red Despite Surprise Hike
On Thursday, the ECB raised interest rates by 25 basis points to 4.50%. While catching the markets by surprise, the ECB offered comfort by stating,
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“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”
US Set to Avoid a Hard Landing
US retail sales, producer prices, and jobless claims painted a rosy picture of the US economy. The better-than-expected numbers failed to boost the chances of a Fed rate hike but eased market fears of a hard landing.
The US equity markets responded to the numbers. The Dow rose by 0.96%, with the S&P 500 and NASDAQ Composite Index seeing gains of 0.84% and 0.81%, respectively.
The Thursday Market Movers
Auto stocks sat at the bottom of the table. BMW and Continental fell by 1.46% and 1.05%, respectively. Porsche and Mercedes Benz Group saw losses of 0.66% and 0.58%, respectively. Volkswagen ended the session down 0.39%. The war of words between the EU and China on electric vehicle subsidies and the threat of a US auto strike weighed on auto stocks.
Siemens Energy AG (+4.20%) enjoyed another breakout session on the news of the EU planning measures to support the wind power industry.
The Friday Session
The futures markets are pointing to a bullish end to the week. The DAX is up 73 points, with the NASDAQ gaining 36 points.
China Economic Indicators Set the Tone
Economic indicators from China offered investors hope of a turnaround in the macroeconomic environment. Industrial production increased by 4.5% year-over-year in August versus 3.7% in July. Retail sales were up 4.6% year-over-year versus 2.5% in July, with the unemployment rate falling from 5.3% to 5.2%.
Economists forecast retail sales and industrial production to rise by 3.0% and 3.9%, respectively, and the unemployment rate to increase to 5.4%. Fixed asset investments rose by a more modest 3.2% versus 3.4% in July. Economists forecast a 3.3% increase.
The Asian markets responded favorably to the latest figures and hopes of the US avoiding a hard landing. This morning, the ASX 200 led the way, gaining 1.78%, with the Hang Seng Index up 1.45%.
Euro Area Trade Likely to Play Second Fiddle to the China Numbers
Eurozone trade figures will draw investor interest later today. Economists forecast a narrowing in the trade surplus from €23 billion to €20 billion. Barring a marked narrowing, we expect investors to ignore the numbers.
The latest economic indicators from China will raise hopes of improved trade terms, allowing investors to discount the July trade figures.
However, ECB President Christine Lagarde could influence investor sentiment after the surprise ECB rate hike.
Other economic indicators include finalized inflation numbers from France, which will have a limited impact on the DAX.
US Consumer Confidence to Test Investor Optimism
Later today, Michigan Consumer Sentiment figures for September will draw interest. After the better-than-expected numbers from the US on Thursday, a slump in confidence could test the soft-landing theory.
A slump in confidence would signal a pullback in spending and a deterioration in US service sector activity. Private consumption accounts for about 70% of the US economy.
Economists forecast the Sentiment Index to fall from 69.5 to 69.2. Sub-68 would likely spook investors.
Short-Term Forecast
Investors will redirect their focus from monetary policy to the global economic outlook. While Germany remains on course for a recession, improving numbers from China and robust economic indicators from the US should support further near-term gains.
DAX Technical Indicators
Daily Chart
On Thursday, the DAX broke above the trend line to target the 50-day EMA. Economic indicators from China support a DAX move to the 50-day EMA. A break above the 50-day EMA would bring the 16,007 resistance level into play.
However, a break below the trend line would give the bears a run at the 15,663 support levels.
The 14-Daily RSI reading of 49.95 indicates a neutral position, leaving the DAX in the hands of economic indicators and central bank chatter.
4-Hourly Chart
The DAX sits above the 50-day EMA, a bullish price signal, while remaining below the 200-day EMA, reaffirming bearish longer-term price signals. A DAX break above the 200-day EMA would bring the 16,007 resistance level into play.
However, a break below the 50-day EMA and trend line would give the bears a run at the 15,663 support levels. Buying pressure will likely intensify at 15,800, with the 50-day EMA confluent with the trend line.
The 54.89 RSI reading signals a DAX move through the 200-day EMA before entering overbought territory.
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