DAX Index: Geopolitical Risks and Eurozone Consumer Sentiment in Focus

Highlights

• The DAX index slid 1.64% on Friday, capping a week of losses totaling 2.56%.
• Geopolitical Tensions Weighed: Escalating Middle East conflict and the Joe Biden funding request likely spooked investors.
• On Monday, Middle East updates and economic indicators from the euro area and the US are in focus.

DAX Friday Overview

On Friday, the DAX slid by 1.64%. Following a 0.33% loss on Thursday, the DAX ended the week down 2.56% to 14,799.

German Producer Prices and Geopolitical Tensions Weighed

On Friday, German producer prices fueled recessionary fears. Producer prices declined by 0.2% in September vs. forecasts of a 0.4% increase. In August, producer prices rose by 0.3%. The unexpected fall in producer prices may ease headline consumer inflationary pressures. However, the pullback also reflected a weak demand environment supporting expectations of an economic recession.

Market concerns about an escalation in the Middle East conflict contributed to the negative mood. News of US President Joe Biden seeking funding to aid the Israel and Ukraine conflicts likely spooked investors.

US involvement in the Middle East conflict could escalate to a regional war. Higher crude oil prices may force central banks to raise interest rates to tackle energy price-fueled inflationary pressures. A more aggressive monetary policy outlook affected the demand for riskier assets.

A pullback in 10-year US Treasury yields was of little consolation. Risk aversion across the US equity markets contributed to the DAX’s losses.

On Friday, the Nasdaq Composite Index and the S&P 500 saw losses of 1.53% and 1.26%. The Dow declined by 0.86%

The Friday Market Movers

Sartorius AG and Heidelberg Materials (formerly HeidelbergCement AG) bore the brunt of the risk aversion. Both tumbled by 6.8%. A 4% decline in year-over-year sales likely contributed to the loss for Heidelberg Materials despite higher profits. Sartorius AG has faced intense selling pressure after revising its full-year forecasts.

The auto sector saw another day of heavy declines. Porsche and Mercedes Benz Group saw losses of 2.64% and 2.27%. BMW and Volkswagen ended the day down 1.84% and 2.05%, respectively. Continental and Daimler Truck Holding saw losses of 0.82% and 1.22%.

However, defense stock Rheinmetall AG gained 0.62% on increasing the risk of a regional Middle East conflict.

Monday Focus: Middle East and Consumer Sentiment

News updates from the Middle East will be the focal point in the Monday session. Progress on Capitol Hill to secure funds to aid the Israeli conflict and the Ukraine war may pressure DAX-listed stocks.

Later in the session, Eurozone consumer confidence figures will garner investor interest. A larger-than-expected fall in confidence will likely impact market risk sentiment. Economists forecast the Eurozone Consumer Confidence Index to fall from -17.8 to -18.2 in October.

A sharp decline would signal a pullback in consumption, raising the prospects of a German recession.

However, investors must track ECB commentary throughout the session. Investors will be mindful of the ECB monetary policy decision on Thursday. Views on the uptrend in crude oil prices and the impact on monetary policy goals would move the dial.

Chicago Fed National Activity in Focus

US economic indicators warrant consideration on Monday. The Chicago Fed National Activity Index will garner investor attention. Economists forecast the Index to increase from -0.16 to 0.05 in September.

Tight labor market conditions and recent consumption figures fueled uncertainty about Fed interest rate projections. FOMC member commentary will also influence the appetite for riskier assets.

The futures markets point to a testy Monday session. The DAX was down 8 points, while the Nasdaq mini gained 31 points.

Short-Term Forecast

The downside bias remains intact going into the Monday session. The threat of a regional Middle East conflict may continue to impact the appetite for riskier assets. A higher-for-longer Fed interest rate path and the possibility of a Fed rate hike are also headwinds.

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day and 200-day EMAs, affirming bearish price signals.

A pullback from the 14,814 resistance level would support a move toward the 14,482 support level. An escalation in the Middle East conflict and a slump in Eurozone consumer confidence would pressure the DAX.

However, a de-escalation in the Middle East would support a break above the 14,814 resistance level. A breakout from the 14,814 resistance level would give the bulls a run at the 15,058 resistance level.

The 14-day RSI reading of 31.67 indicates a DAX drop below 14,800 before entering oversold territory.

4-Hourly Chart

The DAX sits below the 50-day and 200-day EMAs, reaffirming bearish price signals. A DAX break above the 14,814 resistance level would support a move toward the 15,058 resistance level.

However, a drop below 14,800 would give the bears a run at the 14,482 support level.

The 25.14 14-4 hour RSI reading shows the DAX in oversold territory.

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