DAX Set for a Bearish Open on China Woes

Highlights

• It was a bearish Friday for the DAX, falling 1.03% to wrap up the day at 15,832.
• Producer prices from the US and China’s economic woes left the DAX in negative territory.
• Today, investor jitters ahead of economic indicators from China on Tuesday will likely cap the upside

It was a bearish end to a bearish week for the DAX. On Friday, the DAX fell by 1.03%. Reversing a 0.91% gain from Thursday, the DAX ended the week down 0.75% to 15,832.

Investors brushed aside euro area economic indicators, with US inflation the focal point in the second half of the week. Hotter-than-expected US producer price index numbers fueled Fed Fear, leaving the DAX in negative territory.

China’s economic woes added to the bearish mood, with trade and inflation numbers from the weak painting a grim picture of China’s economy. Trouble across the real estate sector was also a drag.

The Dow rose by 0.30% on Friday. However, the NASDAQ Composite Index and the S&P 500 saw losses of 0.68% and 0.11%, respectively.

US Producer Price Report Sends DAX South

Investors brushed aside finalized inflation numbers from France, despite revisions to prelim figures. Consumer prices increased by 0.1% in July versus +0.2% in June. The prelim report showed consumer prices flat in July.

However, US producer price index numbers for July moved the dial. After sticky US core inflation numbers on Thursday, producer prices increased by more than expected in July, raising expectations of a more hawkish Fed.

The US producer and core producer prices increased by 0.3% in July. Economists forecast producer and core prices to rise by 0.2%.

Late in the session, US consumer sentiment figures failed to deliver support despite softer inflation expectations. The Michigan Consumer Sentiment Index slipped from 71.6 to 71.2, while the inflation expectations eased from 3.4% to 3.3%.

The Market Movers

It was a bearish session for the auto sector. Continental AG slid by 3.21%, with Mercedes-Benz Group and BMW seeing losses of 1.87% and 1.73%, respectively.

Porsche and Volkswagen ended the day down 0.78% and 0.65%, respectively.

It was a mixed session for the banks. Commerzbank gained 2.23%, while Deutsche Bank fell by 0.71%.

Continental AG was among the worst performers.

The Day Ahead for the DAX

It is a quiet start to the European session, with no economic indicators from China to move the dial.

However, German wholesale inflation figures will draw interest. A more marked fall in wholesale prices would signal weaker demand, a bearish scenario for the DAX. Economists forecast wholesale prices to fall by 2.5% year-over-year in July versus a 2.9% decline in June.

There are no US economic indicators for investors to consider, leaving sentiment toward the economic outlook for German and China and Fed monetary policy to influence.

While there are no economic indicators to consider, investors should monitor the news wires for central bank chatter.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 50-day (16,010) and 200-day (15,951) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA narrowed to the 200-day EMA, sending bearish price signals and supporting a DAX return to sub-15,750 to bring the 15,600 – 15,525 support band into play.

However, a DAX move through the 200-day EMA (15,951) would give the bulls a run at the 50-day EMA (16,020) and the 16,000 – 16,080 resistance band.

The 14-4H RSI sits at 41.89, reflecting bearish sentiment, with selling pressure overweighing buying pressure. Significantly, the RSI aligns with the EMAs, supporting a return to 15,750 to target the 15,600 – 15,525 support band.

For a look at the economic events, check out our economic calendar.