Dax Index: Futures Point to a Bullish Open on Easing Rate Hike Bets

Highlights

• DAX marked a two-day winning streak on Monday, a significant achievement since August.
• China’s inflation dynamics in August prompted a greater demand for riskier assets.
• German wholesale prices and ZEW Economic Sentiment numbers poised to sway European markets.

DAX Gains for a Second Consecutive Session

The DAX gained 0.39% on Monday. Following a 0.14% rise on Friday, the DAX ended the session at 15,901. Significantly, the DAX enjoyed a two-day winning streak for the first time since August.

China Inflation Delivers Support

China consumer and producer prices for August drove demand for riskier assets. The producer price index fell by 3.0% year-over-year in August versus -4.4% in July. Consumer prices increased by 0.1% year-over-year versus a 0.3% decline in July.

The slower rate of decline in producer prices and rise in consumer prices suggested a moderate pickup in demand at the producer and retail levels.

Italian industrial production figures failed to dampen the mood despite a larger-than-expected fall in production. Industrial production fell by 0.7% in July (June: +0.5%).

Bets Rise on the Fed Ending Its Monetary Policy Tightening Cycle

According to figures from Monday, 1-Year US Consumer Inflation Expectations increased from 3.55% to 3.63%. The figures aligned with economic forecasts for the US inflation rate to rise from 3.2% to 3.6% in August. Despite economists predicting an uptick in headline inflation, economists forecast core inflation to soften from 4.7% to 4.3%.

Softer core inflation could close the door on further rate hikes, supporting riskier assets.

The Monday Market Movers

MTU Aero was the worst performer, tumbling by 12.10% on inspection plans and financial burden news.

However, banks and auto stocks were among the front runners for the second session.

Commerzbank and Deutsche Bank rose by 1.98% and 1.92%, respectively. Daimler Truck Holding led the auto sector, rallying 2.37%.

Inflation numbers from China and easing bets on further Fed rate hikes provided support.

Today’s Session

German wholesale prices for August will draw interest early in the European session. A less marked decline in the wholesale rate of inflation would signal a pickup in demand.

However, German and Eurozone ZEW Economic Sentiment numbers will likely have more impact on buyer appetite. Economists forecast the German ZEW Economic Sentiment Index to fall from -12.3 to -15.0 and the Eurozone Index to decline from -5.5 to -6.2.

While the ZEW Survey is unlikely to influence the ECB monetary policy decisions, a marked decline would signal darker clouds ahead for the German economy.

The DAX Futures was up 24 points this morning.

Inflation and Fed Rate Hike Bets Remain Key Drivers

Easing bets on further ECB and Fed rate hikes continue to support the DAX. However, investors will be mindful of the likely influences of the US CPI Report on the global financial markets.

On Wednesday, economists predict the US CPI Report will reveal softer core inflation. The expectation of softer core inflation continues to fuel bets on the Fed ending its monetary policy tightening cycle.

There are no US economic indicators to consider before the CPI Report. The lack of stats leaves US Treasury Yields and the US equity markets to provide late direction.

Short-Term Forecast

Investor sentiment toward Fed and ECB policy intentions continues to offset recessionary jitters. However, cracks in the US economy could redirect the focus to the economic outlook, which remains DAX-negative.

DAX Technical Indicators

Daily Chart

The DAX avoided the trend line and 15,663 support level on Monday. However, the 50-day EMA rejected a DAX run at the 16,007 resistance level.

Better-than-expected German wholesale prices and German ZEW Economic Sentiment figures would give the DAX another run at the 50-day EMA. A break above the 50-day EMA would give the bulls a look at the 16,007 resistance level.

However, weaker-than-expected ZEW numbers would see the DAX test the trend line. A break below the trend line would bring the 15,663 support level into play.

The 14-Daily RSI reading of 48.63 shows the DAX has room to fall through the trend line and 15,663 support level before entering oversold territory.

4-Hourly Chart

The DAX holds above the 50-day EMA but below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A hold above the 50-day EMA would support a break above the 200-day EMA to target the 16,007 resistance level. However, a break below the 50-day EMA would give the bears a run at the trend line.

The 51.88 RSI reading indicates the DAX can rise to 16,000 before entering overbought territory.

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