DAX Index Forecast: Futures Flash Red Amidst ECB Policy and Growth Jitters

Overview of the DAX Performance on Monday

The DAX declined by 0.15% on Monday. Partially reversing a 0.42% loss from Friday, the DAX ended the session at 17,092. Significantly, the DAX held onto the 17,000 handle for the third consecutive session.

French Growth Forecasts Impact DAX-Listed Stocks

On Monday, the French government adjusted growth forecasts for 2024 from 1.4% to 1.0%. The government cited the war in Gaza and Ukraine and weaker trade terms with China and Germany as reasons for the revisions.

Concerns about the French economy follow recent GDP numbers from Germany that signal an economic recession. Deteriorating macroeconomic conditions could affect the Eurozone economy without an ECB adjustment to interest rate goals.

A higher-for-longer ECB interest rate trajectory could further impact the German and broader Eurozone economy.

There was no euro area or US data to consider on Monday. The US markets were closed for President’s Day. Nonetheless, recent US inflation data resonated.

The Monday Market Movers

Concerns about the Eurozone economy and demand pressured retail-linked stocks.

Auto stocks were among the worst performing. Porsche slid by 3.04%, with BMW and Volkswagen falling by 1.18% and 0.03%, respectively. Mercedes-Benz Group bucked the trend, gaining 0.38%.

Bank stocks also had a mixed session. Commerzbank ended the session down 0.86% on bets the ECB will cut interest rates in April 2024. However, Deutsche Bank rose by 0.09%.

However, Rheinmetall AG rallied 4.10% on news of the firm planning to open a munitions factory in Ukraine.

The PBoC and the ECB in Focus

On Tuesday, the PBoC set the 1-year and 5-year loan prime rates (LPR) before the European opening bell.  The PBoC left the 1-year at 3.45% while cutting the 5-year LRP from 4.2% to 3.95%.

Investors must also monitor stimulus-related chatter from Beijing. Plans to roll out fiscal stimulus measures could have more impact.

During the European session, ECB commentary could also move the dial. The markets are betting on an April rate cut. Warnings about cutting rates too early could affect buyer demand for DAX-listed stocks.

There are no economic indicators from Germany or the euro area to consider.

The US CB Leading Index and FOMC Member Speakers in Focus

On Tuesday, the US markets will reopen after the President’s Day holiday. The US CB Leading Economic Index will garner investor interest. Economists forecast the CB Leading Economic Index to decline by 0.3% in January after falling by 0.1% in December. Views on the economic outlook could influence sentiment toward the Fed interest rate trajectory.

In December, the Conference Board continued to highlight weak consumer confidence. The views on consumer confidence contrasted with the Michigan Consumer Sentiment report.

Beyond the numbers, FOMC member commentary also needs consideration. Support to delay Fed rate cuts beyond June 2024 could pressure rate-sensitive DAX-listed stocks.

Short-term Forecast

Near-term trends for the DAX remain hinged on central bank forward guidance and service sector prices and activity. Softer euro area service sector price pressures could incentivize the ECB to consider an April ECB rate cut. A more dovish ECB rate path could ease concerns about a prolonged German economic recession.

On Tuesday, the DAX futures and Nasdaq mini down up 55 and 64 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX sat well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A DAX move to the 17,100 handle would give the bulls a run at the Friday all-time high of 17,199. A break above the Friday high would bring the 17,250 handle into play.

On Tuesday, the PBoC, central bank commentary, and US data will be the focal points.

However, a drop below the 17,000 handle would likely see the DAX fall toward the 16,850 handle.

The 14-day RSI at 61.03 suggests a DAX break above the ATH 17,199 before entering overbought territory.

4-Hourly Chart

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

A DAX breakout from the all-time high of 17,199 would bring the 17,250 handle into play.

However, a break below the 17,000 handle would support a fall to the 50-day EMA.

The 14-period 4-hour RSI at 57.99 indicates a move through the 17,200 handle before entering overbought territory.