DAX Index: ECB and Fed Rate Path Bets to Test Investor Resilience

Highlights

• The DAX slipped by 0.02% on Tuesday, ending the session at 16,792.
• New loan figures from China and Eurozone industrial production will garner attention on Wednesday.
• Later in the session, the focus will shift to US producer prices and the Federal Reserve.

Overview of the DAX Performance on Tuesday

The DAX slipped by 0.02% on Tuesday. After a 0.21% gain on Monday, the DAX ended the Monday session at 16,792. Significantly, the DAX struck a new All-Time High (ATH) of 16,837 before falling into negative territory.

ZEW Economic Sentiment Numbers Delivered an Early Boost

On Tuesday, ZEW Economic Sentiment indicators for Germany and the Eurozone surprised the markets. Amidst the gloomy macroeconomic backdrop, analysts had a more positive view of the respective economies.

The German ZEW Economic Sentiment indicator climbed from 9.8 to 12.8 in December. Economists forecast a fall to 8.8.

However, German wholesale prices from earlier in the session supported bets on a less hawkish ECB rate path. Wholesale prices were down 3.6% year-over-year in November vs. a 4.2% decline in October.

US CPI Report Tests Fed Rate Cut Bets

On Tuesday, the US CPI Report influenced buyer demand for DAX-listed stocks. Sticky inflation numbers for November eased bets on a Q1 Fed rate cut. Significantly, the reduced bets on a Fed rate cut countered market expectations of a less hawkish ECB rate path.

The US core inflation rate held steady at 4.0%, with consumer prices unexpectedly rising in November. Sticky inflation would be a headwind for the DAX as investors prepare for the Fed and ECB policy decisions.

However, the US equity markets offered the DAX with late support. On Tuesday, the Nasdaq Composite Index gained 0.70%, with the Dow and the S&P 500 rising by 0.48% and 0.46%, respectively. Market bets on the Fed ending its rate hike cycle contributed to the gains.

The Tuesday Market Movers

Zalando SE and Siemens Energy AG sat at the bottom of the DAX for a second consecutive session. Concerns about consumer demand left Zalando AG down 4.74%. Investors reacted further to the news of Morgan Stanley (MS) downgrading Encavis, another renewable energy producer, leaving Siemens Energy AG down 4.19%.

Auto stocks had a mixed session. Porsche declined by 0.80%, with Volkswagen and Mercedes Benz Group falling by 0.54% and 0.52%, respectively. BMW ended the session down 0.36%. Daimler Truck Holding bucked the trend, gaining 0.65%.

The mixed session reflected the countering influences of sticky US inflation and bets on a less hawkish ECB rate path.

However, Hannover Rueck SE rallied 2.13% as investors responded to its net profit projection (24%) for 2024.

Eurozone Industrial Production in Focus

On Wednesday, new loan data from China will draw investor interest. A jump in new loans could ease concerns about demand. However, news of progress toward a stimulus package in Beijing would likely have more impact.

Eurozone industrial production numbers warrant investor attention. Weaker-than-expected figures could fuel bets on a more dovish ECB. Economists forecast industrial production to decline by 0.3% in October after falling 1.1% in September.

US Producer Prices and the Fed in Focus

Later in the Wednesday session, US producer prices for November need consideration. After the US CPI Report, a larger-than-expected rise in producer prices could support bets on the Fed to leave rates unchanged over the near term.

Economists forecast producer prices to increase by 1.0 % year-over-year vs. 1.3% in October.

The US CPI Report and the producer price numbers will likely draw the Fed’s attention. Investor concerns regarding Fed interest rate projections may impact DAX-listed stocks.

The futures markets pointed to a mixed start to the Wednesday session. The DAX was down 26 points, while the Nasdaq mini was up 25.

Short-Term Forecast

Over the near term, trends for the DAX will hinge on the Fed and the ECB. A hawkish Fed could counter a dovish ECB. Significantly, a hawkish ECB could spook investors who expect the ECB to consider rate cuts in H1 2024.

DAX Technical Indicators

Daily Chart

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

A DAX breakout from the Tuesday ATH 16,837 would support a move to the 17,000 psychological resistance level.

Eurozone industrial production and US producer prices are focal points during the European session.

However, a drop below the 16,750 handle would support a fall to the 16,470 support level.

The 14-day RSI reading of 84.01 shows the DAX in overbought territory. Selling pressure could intensify at the Tuesday ATH of 16,837.

4-Hourly Chart

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

A DAX breakout from the Tuesday ATH 16,837 would give the bulls a run at the 17,000.

However, a break below the 16,750 handle would bring the 16,470 support level into play.

The 76.30 14-4 hour RSI shows the DAX in overbought territory. Selling pressure could intensify at the all-time high of 16,837.

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