DAX Ends a Five-Day Losing Streak
On Friday, the DAX ended a five-day losing streak, gaining 0.14%. Reversing a 0.14% loss from Thursday, the DAX ended the week down 0.63% to 15,740.
German Inflation Leaves the ECB in a Predicament
On Friday, finalized German inflation figures for August aligned with preliminary numbers. The annual inflation rate softened modestly from 6.2% to 6.1%. Significantly, the harmonized inflation rate eased from 6.5% to 6.4%. Sticky inflation remains a concern for the ECB.
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However, economic indicators from Germany have flashed recessionary signals, forcing the ECB to rethink its policy goals to tame inflation. Investors expect a German and Eurozone recessions after considering the latest stats. While concerns over the Chinese economy and Fed rate hikes remained headwinds, easing bets on an ECB rate hike provided support.
Fed Vice-Chair Williams Comments Resonate
US economic indicators exceeded expectations in the week. However, uncertainty lingers about Fed policy goals and whether the US economy can keep expanding.
On Thursday, influential Fed Vice-Chair John Williams projected a US unemployment rate above 4.0%. The Vice-Chair avoided the topic of rate hikes but highlighted that the Fed has monetary policy in the right place, leaving the data to influence interest rate future decisions.
There were no comments to suggest a September move, supporting modest gains for the Friday session.
The Friday Market Movers
Zalando tumbled by 5.14%. The German online retailer sat at the bottom of the DAX, with investors fretting over the possible effects of a Eurozone-wide recession on company earnings.
However, banks and autos were among the front runners, with dip buyers providing support. Commerzbank and Deutsche Bank saw gains of 1.82% and 0.71%, respectively. Volkswagen led the auto sector, gaining 1.23%
Today’s Session
Italian industrial production numbers for July will draw interest early in the session. Following the weak numbers from Germany, another gloomy report would test buyer appetite. Economists expect production to fall by 1.7% versus a 0.8% decline in June.
For the European auto sector, vehicle sales from China will influence investor sentiment toward demand. Economists forecast a 2.0% rise in vehicle sales year-over-year in August, recovering from a 1.4% decline in July.
The DAX Futures was up 1 point this morning.
US Inflation in the Spotlight
With the markets betting on a Fed pause on raising interest rates this month, inflation figures will influence bets on Fed policy.
This afternoon, US Consumer Inflation Expectation figures for August need consideration. Economists forecast Consumer Inflation Expectations to soften from 3.5% to 3.4%. Softer numbers would support bets on the Fed to leave interest rates unchanged this month.
However, US inflation numbers on Wednesday will have more impact on Fed policy goals. Economists forecast the US inflation rate to accelerate from 3.2% to 3.6% in August.
Short-Term Forecast
While the DAX Futures signals a steady open, euro area recessionary jitters and US inflation numbers will likely test buyer appetite over the near term.
DAX Technical Indicators
Daily Chart
The trend line held, preventing a sustained DAX break below it on Friday. A hold above the trend line would give the bulls a run at the 50-day EMA and 16,007 resistance level. However, the DAX would need upbeat stats from the Euro area and softer inflation numbers from the US to support a breakout session.
A DAX break below the trend line would bring the 15,663 support level and 15,500 into play. A larger-than-expected slide in Italian industrial production and hotter-than-expected US inflation numbers would bring 15,500 into view.
The 14-Daily RSI reading of 45.24 gives the DAX room to fall through the 15,663 support level before entering oversold territory.
4-Hourly Chart
The DAX continues to hover below the 50-day and 200-day EMAs, reaffirming bearish price signals. An unexpected rise in Italian industrial production would give the bulls a run at the 50-day EMA. However, gloomy numbers would bring the 15,663 support level into play. A break below the trend line would support a fall through the 15,663 support level to bring 15,500 into view.
Later in the session, US inflation numbers also need consideration.
The 46.08 RSI reading indicates the DAX can fall through the 15,663 support level before entering oversold territory.
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