Dax Index: Dual Blows from China and US Put Dax Market on Thin Ice

Highlights

• DAX plunged on Tuesday, ending the day at 15,256 amid global woes.
• US equities suffered; NASDAQ composite index slid by 1.57%.
• German consumer confidence and US core durable goods orders to test buyer appetite and hawkish central bankers.

DAX Tuesday Overview

On Tuesday, the DAX fell by 0.97%. Following a 0.98% loss on Monday, the DAX ended the day at 15,256.

China Real Estate Woes and US House Prices Sink the DAX

A slump across the Asian equity market set the tone for the Tuesday session. News of China Evergrande missing an onshore bond payment fueled risk aversion.

Amidst the gloomy economic backdrop, expectations of a prolonged period of elevated interest rates resonated on Tuesday. This week, ECB President Christine Lagarde discussed elevated inflation and the need for interest rates to remain higher to tame inflation.

The market sentiment toward monetary policy drove government bond yields higher, weighing on riskier assets.

US economic indicators failed to offer comfort. An unexpected rise in house prices countered softer-than-expected consumer confidence, supporting the hawkish Fed rate path.

The US equity markets saw heavy losses on Tuesday. Investors grappled with the threat of a government shutdown, cracks in the US economy, and a hawkish Fed. On Tuesday, the NASDAQ Composite Index slid by 1.57%, with the S&P 500 and the Dow falling by 1.47% and 1.14%, respectively.

The Tuesday Market Movers

Auto stocks struggled for a second session on demand jitters. Porsche was among the worst-performing stocks, sliding by 3.50%, with Volkswagen ending the session down 2.70%. BMW and Mercedes Benz Group declined by 1.39% and 1.33%.

However, Continental bucked the trend, gaining 0.40%.

German Consumer Confidence in Focus

German GfK Consumer Confidence figures will garner investor interest. A larger-than-expected slide in the headline number would fuel fears of a prolonged German recession.

Economists forecast the GfK Consumer Confidence Index to decline from -25.5 to -26.0 in October. Elevated interest rates, sticky inflation, and the macroeconomic backdrop suggest a more marked decline.

Beyond the headline figure, investors should also scrutinize the sub-components. A further deterioration in income expectations would adversely impact the propensity to buy and the German economy.

However, ECB commentary also needs consideration. Hawkish forward guidance on monetary policy would pressure riskier assets. ECB Executive Board member Andrea Enria is on the calendar to speak today.

US Core Durable Goods Orders Another Litmus Test

Later in the session, US core durable goods orders will influence investor sentiment. Recent US economic indicators have shown early cracks in the US economy. The US services sector narrowly avoided a contraction, with US consumer confidence waning.

An unexpected fall in core durable goods orders would test buyer appetite.

Economists forecast core durable goods orders to increase by 0.1% in August versus a 0.5% rise in July.

FOMC member speeches and updates from Capitol Hill on talks to avert a government shutdown will also influence risk sentiment.

This morning, the DAX was down 19 points, while the NASDAQ mini was up 26 points. Industrial profit figures from China set the tone. Industrial profits declined by 11.7% (YTD) year-over-year in August versus a 15.5% fall in July.

While industrial profit fell at a less marked pace, the threat of the collapse of China Evergrande Group remained a headwind.

Short-Term Forecast

The higher-for-longer interest rate mantra and deteriorating macroeconomic environment support the bearish trend. A shift in central bank monetary policy guidance and a convincing stimulus package from Beijing would alter the trajectory. On the present course, sub-15,000 is in view.

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day and 200-day EMAs, sending bearish price signals. A break below the 15,245 support level would bring the 15,058 support level into play. Weak consumer confidence figures from Germany and a pickup in US core durable goods orders would weigh on buyer appetite.

However, an unexpected pickup in consumer confidence would support a DAX move toward the 15.459 resistance level and 200-day EMA. Selling pressure would intensify at 15,459. The 200-day EMA is confluent with the resistance level.

The 14-Daily RSI reading of 32.16 supports a DAX fall through the 15,245 support level before entering oversold territory.

4-Hourly Chart

The DAX, struggling below the 50-day and 200-day EMAs, reaffirms bearish price signals. A DAX break below the 15,245 support level would give the bears a run at the 15,058 support level.

However, a DAX return to 15,300 would support a move toward the 15,459 resistance level.

The 26.94 RSI reading indicates the DAX is in the oversold territory.

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