Wednesday’s Session Overview
It was a bullish Wednesday for the DAX. Partially reversing a 0.86% loss from Tuesday, the DAX gained 0.14% on Wednesday to end the day at 15,790.
Economic indicators from the euro area distracted investors from the gloomy mood across the Asian markets.
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The Eurozone economy expanded by 0.3% in the second quarter after stalling in the first quarter. Year-over-year, the economy grew by 0.6% versus 1.1% in the first quarter, confirming the first estimates.
Industrial production numbers for June provided relief, rising by 0.5% versus forecasts of a 0.1% decline. In May, industrial production increased by 0.2%.
Later in the day, US industrial production figures also beat forecasts. US industrial production increased by 1.0% in July, reversing a 0.8% decline from June. Economists forecast a 0.3% gain.
However, the stats weren’t good enough for the US markets, which reacted to the post-European closing bell FOMC meeting minutes.
On Wednesday, the NASDAQ Composite fell by 1.15%. It was also a bearish session for the Dow and the S&P 500, which saw losses of 0.52% and 0.76%, respectively.
Wednesday’s Market Movers
It was a mixed session for the auto sector. Mercedes-Benz Group and BMW bucked a bearish trend, gaining 0.22% and 0.55%. However, Porsche fell by 0.64%, with Continental AG and Volkswagen ending the day with losses of 0.54% and 0.55%, respectively. Demand concerns remained a drag on the broader auto sector.
It was also a mixed session for the banks. Commerzbank rose by 0.20%, while Deutsche Bank fell by 0.53%. Fitch warnings of a suite of US bank rating downgrades, including JPMorgan (JPM), continued to weigh on bank stocks.
The Day Ahead for the DAX
Today, the Eurozone economy remains in the spotlight this morning. Eurozone trade data for July will draw interest amidst the weak global demand environment and China’s economic woes.
Economists forecast the Eurozone trade balance to rise from a €0.3 billion deficit to a €18.3 billion surplus. The devil will be the details, with a fall in exports being a bearish price scenario.
However, another bearish Asian session will influence investor sentiment. The Asian markets continued to respond to worsening economic indicators from China. The overnight FOMC meeting minutes added to the bearish mood and will move the DAX.
The FOMC Meeting Minutes highlight a divided Committee on the need for further rate hikes. Significantly, the focus remained on inflation rather than the macroeconomic backdrop, leaving rate hikes and a hard landing on the table.
Late in the European session, US economic indicators will also move the dial. Philly Fed Manufacturing Index numbers and US jobless claims will also provide direction. A fall in jobless claims would question the theory of a softer US labor market and support hawkish Fed bets.
We expect the jobless claims to trump the Philly Fed Manufacturing data.
DAX Technical Indicators
Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 50-day and 200-day EMAs, sending bearish near and longer-term price signals. Significantly, the 50-day EMA converged on the 200-day EMA. A bearish cross would give the bears a run at the 15,600 – 15,525 support band.
The 14-4H RSI sits at 42.52, reflecting bearish sentiment, with selling pressure overweighing buying pressure. Significantly, the RSI aligns with the EMAs, supporting a return to 15,700 to target the 15,600 – 15,525 support band.
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