Dax Index: ECB and Fed Uncertainties Weigh on Dax 30 Performance

Highlights

• On Tuesday, the DAX saw a 0.54% dip.
• Economic indicators suggest mixed signals, with Eurozone sentiment declining more than anticipated.
• Investors await with bated breath as the looming US CPI Report promises to shape future Fed decisions.

DAX Hits Reverse on Central Bank Rate Hike Jitters

On Tuesday, the DAX fell by 0.54%. Reversing a 0.39% gain from Monday, the DAX ended the session at 15,716.

Deteriorating Economic Sentiment Sends Mixed Signals

Economic indicators from the euro area tested buyer appetite. The German ZEW Economic Sentiment Index unexpectedly increased from -12.3 to -11.4 in September. However, sentiment toward the Eurozone economy fell by more than forecasts, suggesting more euro area-wide doom and gloom ahead.

While investors grapple with the increasing threat of a euro area economic recession, ECB monetary policy uncertainty added to the cautious mood.

Fed Uncertainty Resurfaces as CPI Report Looms

Sentiment toward the Fed interest rate outlook remained divided. While investors expect the Fed to leave rates unchanged in September, uncertainty lingers over the November decision.

Investors are betting on the Fed hitting pause on interest rate hikes despite economists forecasting a pickup in headline inflation.

The Tuesday Market Movers

MTU Aero continued to sit at the bottom of the table, sliding by 6.89%. The news of inspection plans and financial burdens left MTU Aero down 12.10% on Monday.

However, auto stocks continued to lead the way on hopes of improved demand from China. Mercedes Benz Group gained 1.03%, with Porsche and Volkswagen gaining 0.91% and 0.87%, respectively.

Today’s Session

Eurozone industrial production will be in the spotlight today. Economists forecast a 0.7% fall in production in July after a 0.5% increase in June. While worse-than-expected production figures would test buyer appetite, ECB and Fed monetary policy goals remain the focal point.

The ECB and the Fed remain focused on inflation, limiting the impact of manufacturing sector data on policy bets.

The DAX Futures was down 85 points this morning.

US CPI Report to Dictate Near-Term Fed Policy Goals

The heavily anticipated US CPI Report will influence buyer appetite. An unexpected pickup in core inflation would fuel bets on further Fed rate hikes and impact buyer appetite.

Economists forecast the US core inflation rate to soften from 4.7% to 4.3% while expecting headline inflation to accelerate to 3.6%. With the markets betting on a Fed pause in September, the CPI Report could materially alter the Fed policy outlook.

The Eurozone economy faces turbulent times ahead. A more hawkish Fed could reignite fear of a US hard landing, another reason for investors to remain cautious before the CPI Report.

Short-Term Forecast

With the weakening euro area macroeconomic backdrop, hawkish bets on ECB and Fed monetary policy decisions remain headwinds. The lack of a meaningful stimulus package from Beijing to boost the Chinese economy is another consideration.

DAX Technical Indicators

Daily Chart

On Tuesday, the trend line rejected a DAX move toward the 15,663 support level. However, rising bets on ECB and Fed interest rate hikes would support a break below the trend line to target the 15,663 support level.

Hotter-than-expected US inflation figures would refuel Fed rate hike bets. However, investors must also consider the threat of a 25-basis point ECB rate hike. A deteriorating macroeconomic environment and hawkish bets on interest rates would weigh on investor sentiment.

In contrast, cooler-than-expected US inflation numbers could close the door on further Fed rate hikes. An end to the Fed rate hike cycle would bring the 50-day EMA and 16,007 resistance level into play.

The 14-Daily RSI reading of 44.46 signals the DAX can fall through the trend line and 15,663 support level before hitting oversold territory.

4-Hourly Chart

The DAX remains below the 50-day and 200-day EMAs, sending bearish price signals. Easing bets on an ECB rate hike and softer US inflation numbers would support a break above the trend line to target the 50-day EMA.

However, hotter-than-expected US inflation figures would give the DAX a run at the 15,663 support level.

The 43.63 RSI reading shows the DAX can fall to sub-15,600 before entering oversold territory.

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