DAX Index: China Stats Fail to Impress as Inflation Jitters Resurface

Highlights

• The DAX rose by 0.22% on Friday, ending the session at 16,030.
• Risk-off sentiment to test the appetite for riskier assets on Monday.
• China economic uncertainty and pre-euro area and US inflation apprehension are early tests for the markets.

Friday DAX Overview

The DAX gained 0.22% on Friday. Following a 0.23% rise on Thursday, the DAX ended the week up 0.69% to 16,030.

German Business Sentiment Counters Weaker GDP Numbers

On Friday, Q3 GDP numbers tested buyer demand for DAX-listed stocks early in the session. The German economy contracted 0.4% year-over-year in Q3 vs. a first estimated 0.3% contraction.

However, German business confidence improved in November, sending further signs of an improving macroeconomic environment. The Ifo Business Climate Index rose from 86.9 to 87.3 in November.

Late in the European session, US economic indicators delivered further support. Better-than-expected US Services PMI numbers raised bets on a soft landing. However, the numbers had a limited impact on sentiment toward the Fed interest rate path.

According to the CME FedWatch Tool, the probability of a 25-basis point May Fed rate cut stood at 46.1% vs. 47.8% on November 17. However, 10-year US Treasury yields climbed 1.36% to 4.472% on Friday, capping the upside for the DAX.

The Friday Market Movers

The auto sector contributed to the gains despite a mixed Friday session. Continental AG was among the best performers, rallying 2.03%, with Daimler Truck Holding rising by 0.88%. Mercedes Benz Group and Volkswagen ended the day up 0.55% and 0.39%.

However, Porsche and BMW bucked the trend, falling 0.35 and 0.08%, respectively.

A pickup in German business sentiment likely contributed to the gains for the broader auto sector.

However, bank stocks ended Friday in negative territory. Deutsche Bank and Commerzbank declined by 0.11% and 0.22%, respectively.

ECB President Lagarde and China in Focus on Monday

On Monday, ECB President Lagarde is on the calendar to speak. References to inflation, the economic outlook, and the ECB rate path need consideration. However, the ECB President could retain language from previous speeches. This week, euro area member state and Eurozone inflation numbers will likely dictate the ECB rate path trajectory. Uncertainty about inflation could test buyer demand for DAX-listed stocks at current levels.

From the Asian session on Monday, better-than-expected industrial profit numbers from China failed to boost the appetite for riskier assets. A lack of detail from Beijing on stimulus plans remained a headwind before the European opening bell.

There are no euro area economic indicators to influence the DAX on Monday.

Looking at the futures, the DAX and Nasdaq mini were down 32 and 79 points, respectively.

US Economic Unlikely to Move the Dial

On Monday, US new home sales and Dallas Fed Manufacturing Index numbers will be in focus. While the US housing sector is a barometer of the US economy, the numbers are unlikely to influence bets on a Fed rate cut. The US manufacturing sector could draw interest. An expected slide in the Dallas Fed Manufacturing Index could question bets on a soft landing.

Economists forecast new home sales to decline by 4.0% in October after a 12.3% surge in September. Importantly, economists expect the Dallas Fed Manufacturing Index to rise from -19.2 to -17.0 in November.

Short-Term Forecast

Near-term trends will likely hinge on the euro area and US inflation numbers in the second half of the week. Softer inflationary pressures would ease the need for hawkish rate paths. A less hawkish rate path and improving economic indicators from Germany could deliver further gains for the DAX.

DAX Technical Indicators

Daily Chart

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

A DAX hold above the 16,004 support level would bring the trend line into play.

ECB President Lagarde and the US economic calendar are focal points for the Monday session.

However, a drop below the 16,004 support level would give the bears a run at sub-15,850.

The 14-day RSI reading of 74.16 shows the DAX in overbought territory. Selling pressure will likely intensify at current levels.

4-Hourly Chart

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

A DAX hold above the 16,004 support level would support a move to the trend line.

However, a drop below the 16,004 support level would bring sub-15,850 into view.

The 80.15 14-4 hour RSI shows the DAX in overbought territory. Selling pressure will likely intensify at current levels.

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