DAX Index: A New All-Time High Hinged on Corporate Earnings and the ECB

Highlights

• The DAX declined by 0.65% on Wednesday, ending the session at 16,922.
• A Moody’s downgrade of a US regional bank impacted market risk appetite.
• On Thursday, corporate earnings, central bankers, and US regional bank-related news need consideration.

Overview of the DAX Performance on Wednesday

The DAX declined by 0.65% on Wednesday. Partially reversing a 0.76% gain from Tuesday, the DAX ended the session at 16,922.

German Industrial Production and Corporate Earnings

On Wednesday, German industrial production slid by 1.6% in December. Economists expected a 0.4% decline. The larger-than-expected fall pressured the DAX early in the session.

ECB chatter and banking sector jitters contributed to the losses. ECB Executive Board member Isabel Schnabel said the ECB should be patient about cutting rates.

Investors also reacted to Moody’s downgrading New York Community Bancorp Inc. (NYCB) by two notches to junk. Commercial Real Estate sector woes impacted the bank’s balance sheet.

However, German corporate earnings limited the downside for the DAX.

Fed Speakers and Corporate Earnings

Later in the session, hawkish Fed commentary contributed to the losses on Wednesday. FOMC members Adriana Kugler and Susan Collins favored a more patient approach to cutting interest rates.

However, corporate earnings continued to send the US markets higher. Uber Technologies (UBER), CVS Health Corp. (CVS), Fox Corp. (FOX), The Walt Disney Co. (DIS), PayPal Holdings Inc. (PYPL), and Mattel Inc. (MAT) were among the big names to release earnings.

On Wednesday, the Dow gained 0.41%. The S&P 500 and the Nasdaq Composite Index ended the session up 0.82% and 0.95%, respectively.

The Wednesday Market Movers

Deutsche Bank and Commerzbank slid by 5.58% and 3.35%, respectively. Investors reacted to the latest US banking sector woes.

Infineon Technologies declined by a further 5.12% as weaker-than-expected revenue figures resonated.

Auto stocks had another mixed session. BMW rallied 1.62%, with Mercedes Benz Group gaining 0.03%. US car manufacturer Ford Motor Co. (F) beat earnings expectations and delivered a positive outlook for 2024, contributing to the gains for BMW and Mercedes.

However, Porsche and Volkswagen declined by 0.63% and 0.27%, respectively.

The Thursday Session: Corporate Earnings and the ECB in Focus

On Thursday, corporate earnings will garner investor interest. L’Oreal, Siemens AG, Siemens Energy AG, Unilever, Credit Agricole, and Société Generale are among the big names on the earnings calendar.

Concerns about bank exposures to commercial real estate could affect investor reaction to bank earnings.

Away from the earnings calendar, the ECB is also in focus. The ECB Economic Bulletin will draw investor interest. Views on the economic outlook, inflation, and monetary policy could move the dial.

However, investors must also consider ECB commentary. ECB Chief Economist Philip Lane is on the calendar to speak on Thursday. Hawkish comments on inflation and interest rates could curb bets on an April ECB rate cut. A higher-for-longer ECB rate path could impact buyer demand for DAX-listed stocks.

US Calendar: US Labor Market, the Fed, and Earnings

On Thursday, US jobless claims will warrant investor attention. Economists forecast initial jobless claims to fall from 224k to 220k in the week ending February 3. A larger-than-expected decline could support reducing bets on a March Fed rate cut.

Investors must also monitor Fed commentary throughout the session. FOMC voting member Thomas Barkin is on the calendar to speak on Thursday. Support to delay rate cuts could impact demand for riskier assets. On Wednesday, Barkin called for patience in cutting interest rates.

Away from the economic calendar, corporate earnings will also move the dial. Warner Music Group Corp. (WMG), Ralph Lauren Corp. (RL), and Thomson Reuters Co. (TRI) are among the big names to release earnings.

Short-term Forecast

Near-term trends for the DAX remain hinged on central bank forward guidance and corporate earnings. Upbeat earnings could counter more hawkish-than-expected central bank commentary. However, banking sector-related news also needs consideration.

On Thursday, the DAX futures and the Nasdaq mini were up 28 and 6 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX sat well above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX breakout from the Tuesday all-time high of 17,050 would give the bulls a run at 17,100.

On Thursday, corporate earnings, central bank chatter, and banking sector news need consideration.

However, a fall through the 16,850 handle would bring the 16,750 handle into play.

The 14-day RSI at 57.88 suggests a DAX break above the ATH of 17,050 before entering overbought territory.

4-Hourly Chart

The DAX hovered above the 50-day and 200-day EMAs, affirming the bullish price signals.

A DAX move through the Tuesday all-time high of 17,050 would give the bulls a run at 17,100.

However, a drop below the 50-day EMA would bring the 16,750 handle into view.

The 14-period 4-hour RSI at 51.43 suggests a DAX move toward 17,100 before entering overbought territory.