DAX Resumes Uptrend on Central Bank Bets
On Thursday, the DAX gained 0.35%. Reversing a 0.24% gain from Wednesday, the DAX ended August down 3.04% to 15,947.
German Economy Flashes Red Amidst Hawkish ECB Sentiment
Private sector PMI numbers from China and German retail sales painted a gloomy economic backdrop.
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German unemployment numbers also weighed, with sticky Eurozone inflation numbers supporting hawkish ECB policy bets. With hotter-than-expected Eurozone inflation numbers, the ECB monetary policy meeting minutes green-light a September ECB rate hike.
US Personal Income and Outlays Report Sends Mixed Fed Signals
In contrast, US economic indicators failed to boost the chance of a September Fed rate hike. The US Personal Income and Outlays Report reported a surge in personal spending and a modest increase in the Core PCE Price Index. However, personal income came in cooler. The mixed numbers left investors to await the US Jobs Report before making a decisive move.
According to the CME FedWatch Tool, the chances of the Fed delivering a September rate hike stood at 11.0% versus 10.0% one day earlier.
The US equity markets had a mixed reaction to the Thursday economic calendar. On Thursday, the S&P 500 and Dow fell by 0.16% and 0.48%, respectively. The NASDAQ Composite Index bucked the trend, rising by 0.11%.
The Thursday Market Movers
Bank and auto stocks limited the upside for the DAX on Thursday. Economic indicators raised more red flags. Commerzbank and Deutsche Bank were the worst performers, falling by 1.74% and 1.35%, respectively.
Volkswagen (-0.34%), Porsche (-0.12%), and BMW (-0.09%) also ended the day in negative territory.
Today’s Session
Economic indicators from China will set the tone this morning. The all-important China Caixin Manufacturing PMI caught the markets by surprise. The PMI jumped from 49.2 to 51.0 in August. Economists forecast a modest increase to 49.3. Weak overseas demand remained a concern despite the pickup in domestic business.
Later this morning, manufacturing PMI numbers for Spain and Italy and finalized PMIs for France, Germany, and the Eurozone will draw interest.
Barring a marked revision to the German PMI, we expect the Eurozone PMI to have more impact on buyer appetite. According to flash numbers, the Eurozone Manufacturing PMI increased from 42.7 to 43.7 in August.
The DAX Futures was up 25 points this morning on the better-than-expected Manufacturing PMI from China.
US Jobs Report to Have the Final Say of the Week
The US Jobs Report will garner interest this afternoon. Investors eased bets on Fed interest rates in response to the weaker-than-expected US JOLTs and ADP reports. However, the US Personal Income and Outlays Report left mixed signals, with spending and inflation up but income down.
A pickup in wage growth and a steady unemployment rate should put a final Fed rate hike on the table. Economists forecast an unemployment rate of 3.5% and wage growth of 4.4%.
Beyond the economic indicators, investors should monitor the news wires for central bank chatter. Reaction to this week’s economic calendar would draw interest.
Short-Term Forecast: Precarious Moment for the DAX
Rising bets on a September ECB rate hike and a grim macroeconomic environment leave the DAX under pressure. However, an end to the Fed monetary tightening would cushion the downside. The US Jobs Report needs to materially improve the chances of a Fed rate hike to leave the DAX at sub-$15,750.
DAX Technical Indicators
Daily Chart
On Thursday, resistance at 16,007 left the DAX at sub-16,000. However, the DAX broke through and held above the 50-day EMA, a bullish price signal. The DAX would need the US Jobs Report to reveal a softer wage growth and a modest increase in unemployment to retest resistance at 16,007.
However, a hotter-than-expected US Jobs Report would send the DAX down through the 50-day EMA to bring the trend line and 15,663 support band into play.
Considering the 14-Daily RSI at 53.70, the DAX has room to run before hitting overbought territory. However, the US Jobs Report needs to be DAX-friendly to support further gains.
4-Hourly Chart
On Thursday, the DAX broke through the 200-day EMA to test the 16,007 resistance band. Notably, the 50-day EMA narrowed on the 200-day EMA, bringing a bullish cross into play. Euro area manufacturing sector PMIs and the US Jobs Report must be DAX-friendly to support a breakout from the 16,007 resistance band.
A hotter-than-expected US Jobs Report would likely see the DAX fall through the EMAs to target the trend line and 15,663 support band. We expect strong support at 15,663, with the support band and trend line crossing.
Considering the 60.70 RSI reading, the DAX has more room to run before entering overbought territory.
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