DAX Index: ECB Chief Economist Lane, German Consumer Confidence, and Producer Prices

Highlights

• The DAX gained 0.56% on Tuesday, ending the session at 16,744.
• Bets on central rate cuts drove demand for riskier assets on Tuesday.
• On Wednesday, German producer prices and consumer confidence are focal points before the US session.

Overview of the DAX Performance on Tuesday

The DAX gained 0.56% on Tuesday. After a 0.60% loss on Monday, the DAX ended the Tuesday session at 16,744. Significantly, the DAX ended a five-day losing streak.

Eurozone Inflation Softens to Support Rate Cut Bets

On Tuesday, finalized November inflation numbers for the Eurozone garnered investor interest. Softer inflationary pressures aligned with market bets on ECB rate cuts in 2024. According to finalized figures, the annual inflation rate softened from 2.9% to 2.4%. Month-on-month, consumer prices slid by 0.6%.

However, core inflation rate remained elevated at 3.6% despite easing from 4.2% in October.

On Tuesday, the Governor of the Bank of France and ECB Executive Board member Francois Villeroy de Galhau discussed inflation and interest rates. On rate cuts, Villeroy reportedly said,

“We had to raise interest rates to tackle the inflation disease (…) Between this rise that, barren any surprise, is over, and the lowering that should occur sometime in 2024, there is a plateau.”

The US Housing Sector and US Equities Offer Support

On Tuesday, better-than-expected US housing sector data supported buyer demand for riskier assets, countering hawkish Fed comments. US housing starts surged by 14.8% in November, raising expectations of a soft landing. A larger-than-expected fall in building permits had a limited impact on market risk sentiment.

FOMC member Raphael Bostic failed to spook investors despite forecasting two Fed rate cuts in 2024. The markets expect US interest rates to drop below 4.5% in 2024.

The US equity markets responded to the housing sector numbers. On Tuesday, the Nasdaq Composite Index and the Dow ended the day up 0.66% and 0.60%, respectively. The S&P 500 rose by 0.59%.

The Tuesday Market Movers

Market sentiment toward central bank monetary policy goals drove demand for DAX-listed stocks. Expectations of ECB rate cuts and softer inflation drove demand for consumer-linked stocks. Zalando SE rallied 3.35%, with Adidas gaining 0.60%.

However, auto stocks limited the upside. Porsche was the worst performer, falling 1.29%. Volkswagen and Daimler Truck Holding declined by 0.56% and 0.53%, respectively. BMW and Mercedes Benz Group saw losses of 0.14% and 0.52%, respectively.

German Producer Prices, Consumer Sentiment, and the ECB in Focus

On Wednesday, German producer prices and consumer confidence figures will garner investor interest. A further pullback in producer prices would support bets on ECB rate cuts in 2024. Downward trends in producer prices reflect a weak demand environment, dampening consumer price inflationary pressures.

Economists forecast producer prices to fall by 0.3% in November vs. a 0.1% decline in October.

However, German GfK Consumer Confidence figures for January also warrant investor attention. An upswing in consumer confidence could signal a pickup in consumer spending, a boon for the German economy. Economists forecast the GfK Consumer Confidence to increase from -27.8 to -27.0 for January.

Beyond the numbers, investors must consider ECB commentary. ECB Chief Economist Philip Lane is on the calendar to speak on Wednesday. Comments favoring rate cuts in 2024 would drive demand for DAX-listed stocks.

US Consumer Confidence and the Fed

On Wednesday, US consumer confidence will warrant investor attention. A pickup in consumer confidence would signal an upward trend in consumer spending. US private consumption contributes over 60% to the economy. Upward trends in consumer spending would support bets on a soft landing.

However, upward trends in consumer spending could fuel demand-driven inflation and force the Fed to keep rates higher for longer. Nonetheless, the FOMC projections and hopes of a soft landing remain bullish for riskier assets.

Economists forecast the CB Consumer Confidence Index to increase from 102.0 to 104.0 in December.

Beyond the numbers, investors must consider Fed chatter. Reaction to the consumer confidence figures could draw investor interest.

The futures markets pointed to a positive start to the Wednesday session. The DAX and the Nasdaq mini were up 25 and 17 points, respectively.

Short-Term Forecast

Near-term trends for the DAX will likely hinge on German economic indicators, ECB chatter, and US inflation (Fri) numbers. Weaker German economic indicators and softer US inflation figures would drive buyer demand for DAX-listed stocks. However, ECB commentary must support ECB rate cuts in 2024.

DAX Technical Indicators

Daily Chart

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

A DAX move through the 16,750 handle would give the bulls a run at the December 14 ATH 17,003.

The ECB, German economic indicators, the Fed, and US consumer confidence need consideration on Wednesday.

However, a fall through the 16,600 handle would bring the 16,470 support level into play.

The 14-day RSI reading of 74.79 shows the DAX in overbought territory. Selling pressure may intensify at the 16,750 handle.

4-Hourly Chart

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

A DAX return to the 16,750 handle would support a move toward the December 14 ATH 17,003.

However, a fall through the 16,600 handle would bring the 50-day EMA and the 16,470 support level into view.

The 56.84 14-4 hour RSI suggests a DAX return to the 16,850 handle before entering overbought territory.

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