DAX Index: Geopolitical Tensions and the German Economy in Focus

Highlights

• DAX saw a 1.06% gain on Friday, offsetting Thursday’s 0.20% loss, concluding at 15,230 for the week.
• German factory orders exceeded August expectations, bolstering early-session demand for DAX stocks.
• Anticipation grows for Monday’s DAX reaction to the Middle East conflict and German industrial production insights.

DAX Friday Overview

On Friday, the DAX gained 1.06%. Reversing a 0.20% loss from Thursday, the DAX ended the week down 1.02% to 15,230.

German Factory Orders and US Wage Growth Offer Support

German factory orders rose more than expected in August, driving demand for DAX-listed stocks early in the session.

However, the US Jobs Report spooked investors late in the European session. A surge in nonfarm payrolls dragged the DAX into the red before a final-hour rebound. Softer wage growth and a steady unemployment rate eased bets on a more hawkish Fed rate path.

The DAX was inversely correlated with US 10-year Treasury yields as investors considered the likely impact of the Jobs Report on the Fed rate path.

The US equity markets responded favorably to the softer US wage growth and steady unemployment rate. On Friday, the NASDAQ Composite Index gained 1.60%, with the S&P 500 and the Dow rising by 1.18 and 0.87%, respectively.

The Friday Market Movers

Zalando surged by 6.45% to top the DAX. Recent economic indicators fueled hopes of a turnaround in the German economy, driving buyer appetite.

Auto stocks were also up despite the auto sector reporting a fall in factory orders in August. Daimler Truck Holding rallied 2.32%, with Continental (1.87%) and BMW (1.51%) also making solid gains. Porsche and Volkswagen trailed, rising by 0.24% and 0.26%, respectively.

German Industrial Production and China in Focus

Ahead of the European session, movement across the Chinese markets will garner interest. Reopening after the Golden Week holidays, a pullback in the Chinese equity markets will likely weigh on the DAX.

However, investors will respond to the conflict in the Middle East and the threat of a wider regional conflict.

From the economic calendar, the German economy will be in the spotlight again on Monday. After the positive response to the factory orders report, the DAX will likely react to a pickup in German industrial production.

Economists forecast a 0.1% fall in industrial production vs. a decline of 0.8% in July. Investors may show less reaction to a larger-than-expected fall in production. The jump in German factory orders points to a near-term pickup in factory output.

Beyond the numbers, ECB commentary may also influence the appetite for DAX-listed stocks. ECB Executive Board members Luis de Guindos and Andrea Enria are on the ECB calendar to speak today.

Fed Commentary to Influence Treasury Yields and the DAX

Later today, FOMC member speeches will likely influence US Treasury yields and the appetite for riskier assets. FOMC voting members Philip Jefferson, Lorie Logan, and Michael Barr are on the calendar to speak. Comments relating to the US Job Report, the Middle East conflict, and interest rate moves need consideration.

The DAX and NASDAQ mini were down 71 and 113 points this morning. Risk aversion stemming from the conflict in the Middle East left the markets in negative territory.

Short-Term Forecast

Recent German economic indicators suggest a possible turning point for the German economy. A likely end to ECB rate hikes and a pickup in economic activity would support a DAX return to 16,000. However, near-term trends will likely hinge on updates from the Middle East.

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day and 200-day EMAs, sending bearish price signals. A break above the 15,245 resistance level would support a move to the 200-day EMA and the 15,459 resistance level.

Easing geopolitical tensions and upbeat German industrial production figures would support a positive session.

However, selling pressure may intensify at 15,450. The 200-day EMA is confluent with the 15,459 resistance level.

Risk-off sentiment and hawkish Fed commentary would weigh on the appetite for riskier assets.

A DAX drop below 15,200 would bring the 15,058 support level into play.

The 14-day RSI reading of 39.87 supports a DAX break below the 15,058 support level before entering oversold territory.

4-Hourly Chart

The DAX remains below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A DAX break above the 15,245 resistance level would bring the 50-day EMA and 15,459 resistance level into play.

However, a fall below 15,200 would give the bears a run at the 15,058 support level.

The 48.97 RSI reading indicates a DAX fall to the 15,058 support level before entering the oversold territory.

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