Tuesday Session Overview
The DAX gained 0.66% on Tuesday. Following a 0.19% rise on Monday, the DAX wrapped up the day at 15,706. A bearish end to the session saw the DAX pull back from a session high of 15,799. Another rise in government bond yields weighed on riskier assets.
Monday gains from the US and a bullish Asian session across equity markets on Tuesday delivered an early boost. However, rising government bond yields left the DAX off the session high.
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There were no euro area economic indicators to provide direction. However, US housing sector numbers and uncertainty surrounding Fed monetary policy tested buyer appetite.
Investors remain divided on Fed interest rates, with the hawks expecting one final rate hike before the end of the year. However, other investors expect the Fed to wait for the next round of US economic indicators before providing guidance. With investors focused on the Jackson Hole Symposium, uncertainty is influencing.
The S&P 500 and the Dow fell by 0.28% and 0.51%, respectively, while the NASDAQ rose by 0.06%. Bank stocks struggled on the news of S&P Global downgrading US banks exposed to the real estate sector. Falling oil and natural gas prices weighed on energy stocks.
Tuesday’s Market Movers
The auto sector had another mixed session on Tuesday. BMW and Mercedes-Benz Group rose by 0.46% and 0.37%, respectively. Porsche gained 0.18%, while Volkswagen ended the day up 0.02%. The gains were modest, with recessionary fears weighing on the demand outlook.
Continental AG bucked the trend, falling by 0.17% after rallying by 5.87% on Monday as investors reacted to plans to sell the ContiTech car unit. Continental is undergoing reorganization to boost profitability.
Bank stocks avoided losses. Commerzbank and Deutsche Bank rose by 0.05% and 0.26%, respectively.
Infineon was among the best performers, gaining 2.71%. Tech stocks found support after the NASDAQ rally on Monday.
The Day Ahead for the DAX
Prelim private sector PMI figures for France, Germany, and the Eurozone will impact market risk sentiment.
The Germany economy stumbled into the third quarter. Weak economic indicators raised the chances of a sustained recession. However, the PMI numbers will influence investor sentiment and the ECB. A deeper contraction across the German manufacturing sector and weaker service sector activity will impact the DAX.
Economists forecast the German manufacturing PMI to fall from 38.8 to 38.7. Significantly, economists expect the German services PMI to fall from 52.3 to 51.5. A fall below 51 would likely spook investors.
While the German PMIs will have more impact, we expect the DAX to react to the Eurozone PMIs. Economists forecast the Eurozone Services PMI to fall from 50.9 to 50.5. A fall to sub-50.0 would signal a contraction and force the ECB to reconsider another interest rate hike. The manufacturing sector will likely continue to contract in August.
The US services PMI will test investor sentiment toward the US economy and the Fed. An unexpected contraction in the US services sector would reignite fears of a US recession. Economists forecast the August services PMI to fall from 52.3 to 52.2. A rise in the services PMI would increase the chance of a Fed rate hike.
DAX Technical Indicators
After two positive sessions, the DAX remained above the 15,600 – 15,525 support band. However, DAX sat below the 50-day and 200-day EMAs, sending bearish near and longer-term price signals.
Looking at the 14-4H RSI, the RSI sits at 46.45, reflecting bearish sentiment, with selling pressure overweighing buying pressure. Significantly, the RSI aligns with the EMAs signaling a fall through the 15,600 – 15,525 support band to give the bears a run at sub-15,500.
Price action hinges on the euro area and US prelim private sector PMIs.
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