DAX Index: Futures Point to a Testy Start Amidst ECB Warnings About Rate Cuts

Highlights

• The DAX slipped by 0.07% on Wednesday, ending the session at 16,733.
• ECB commentary countered softer inflation figures, leaving the DAX in negative territory.
• On Thursday, ECB Chief Economist Philip Lane and the US economic calendar warrant investor attention.

Overview of the DAX Performance on Wednesday

The DAX slipped by 0.07% on Wednesday. After a 0.56% gain on Tuesday, the DAX ended the Wednesday session at 16,733.

German Producer Prices Signal Softer Consumer Price Inflation

On Wednesday, German producer prices declined by more than expected in November. Producer prices fell by 0.5%, signaling a softer outlook for consumer price inflation. However, producer prices declined at a less marked pace year-over-year, suggesting an improved demand environment compared with November 2022.

German consumer sentiment also improved by more than expected. The GfK Consumer Confidence Indicator increased from -27.6 to -25.1 for January.

ECB Executive Board Members Influence Bets on ECB Interest Rate Cuts

ECB Executive Board member commentary countered market-friendly economic indicators. On Wednesday, Bundesbank President Joachim Nagel and Klaas Knot, President of De Nederlandsche Bank, tried to pour cold water on ECB rate cut bets. Both reportedly warned it was too early to call victory on inflation.

US Equity Markets Contribute to Session Loss

On Wednesday, US consumer confidence figures for December failed to spur a late rally. The CB Consumer Confidence Index climbed from 101.0 to 110.7, supporting bets on a soft landing. However, FedEx (FDX) cut its revenue forecasts on Wednesday, signaling a weak demand outlook. FedEx shares ended the session down 12.05% to $246.25. The Nasdaq Composite Index slid by 1.50%, with the Dow and the S&P 500 falling by 1.27% and 1.47%, respectively.

The Wednesday Market Movers

FedEx dragged Deutsche Post into negative territory. Deutsche Post was the worst performer on the DAX, sliding by 1.93%.

Auto stocks contributed to the Wednesday loss. Porsche declined by 0.65%. BMW and Volkswagen ended the day down 0.46% and 0.39%, respectively. Mercedes Benz Group fell by 0.11%.

ECB Chief Economist Philip Lane in Focus

On Thursday, investors must consider ECB commentary throughout the session. ECB Chief Economist Philip Lane is on the calendar to speak on Thursday.

On Wednesday, the ECB Chief Economist warned wage growth across Europe could fuel consumption and inflationary pressure. Lane also echoed comments from Knot and Nagel about calling victory on inflation too early. Further references to inflation, the economy, and interest rates need consideration.

US GDP, Jobless Claims, and Manufacturing in Focus

On Thursday, the US economic calendar will garner investor interest. Q3 GDP numbers, jobless claims, and the Philly Fed Manufacturing Index will be in focus. Barring revisions to the GDP numbers, jobless claims and manufacturing sector data could impact market risk sentiment.

Investors remain wary of a hard landing. Cracks in the US economy could fuel bets on a hard landing and pressure riskier assets. Economists forecast the Philly Fed Manufacturing Index to increase from -5.9 to -3.0 in December. Significantly, economists expect initial jobless claims to rise from 202k to 215k in the week ending December 16.

Beyond the numbers, FOMC member commentary also needs monitoring. Better-than-expected data and hawkish Fed comments could test bets on a Q1 2024 Fed rate cut.

The futures markets pointed to a mixed start to the Thursday session. The DAX was down 94 points, while the Nasdaq mini gained 60 points.

Short-Term Forecast

Near-term trends for the DAX will depend on ECB commentary and the US Personal Consumer Expenditure report on Friday. Sticky US inflation numbers would align with recent Fed warnings about expecting frequent rate cuts in 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 break above the 16,750 handle would support a move toward the December 14 ATH 17,003.

The ECB, the Fed, and US economic indicators could influence market risk sentiment on Thursday.

However, a drop below the 16,600 handle would give the bears a run at the 16,470 support level.

The 14-day RSI reading of 73.86 shows the DAX in overbought territory. Selling pressure could intensify at the 16,750 handle.

4-Hourly Chart

The DAX held above the 50-day and 200-day 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.

However, a drop below the 16,600 handle would support a drop to the 50-day EMA.

The 55.32 14-4 hour RSI indicates a DAX return to the 16,850 handle before entering overbought territory.

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