DAX Index: German Labor Market Numbers and US Data in Focus

Highlights

• The DAX gained 0.11% on Tuesday, ending the session at 16,769.
• German unemployment numbers will draw investor interest on Wednesday.
• However, the US JOLTs Report and the US ISM Manufacturing PMI survey also need consideration.

Overview of the DAX Performance on Tuesday

The DAX gained 0.11% on Tuesday. After rising by 0.30% on Friday, the DAX ended the Tuesday session at 16,769.

Euro Area Manufacturing Sector PMIs Offer Little Relief

On Tuesday, the Euro area manufacturing sector was in focus. Upward revisions to preliminary survey-based results failed to provide comfort. The manufacturing sector raised the likelihood the Eurozone entered a recession in Q4 2023. In December, the German Manufacturing PMI increased from 42.6 to 43.3. The Eurozone Manufacturing PMI rose from 44.2 to 44.4. Below 50 reflects a sector contraction.

Better-than-expected Caixin Manufacturing PMI from China delivered early support. However, the China NBS Manufacturing PMI from the weekend resonated. The NBS Manufacturing PMI fell from 49.4 to 49.0 in December. In contrast, the Caixin Manufacturing PMI rose from 50.7 to 50.8.

US Economic Indicators Provide Late Support

US Manufacturing PMI numbers for December offered late support. A more marked contraction across the US manufacturing sector led to a pullback in 10-year US Treasury yields from session highs.

Nonetheless, the US equity markets had a mixed session. On Tuesday, the Dow gained 0.07%. However, the S&P 500 and the Nasdaq Composite Index fell by 0.57% and 1.63%, respectively.

The Tuesday Market Movers

Rheinmetall AG rallied 4.25% on rising tensions in the Red Sea. Auto stocks also made gains. Mercedes-Benz Group rose by 1.25%, with BMW and Porsche ending the day up 0.99 and 1.08%, respectively. Volkswagen gained 0.97%. Improving German forward indicators from the Manufacturing PMI survey contributed to the gains.

However, recession jitters weighed on retail stocks. Online regional retailer Zalando SE slid by 2.28%.

Tech stocks also ended the day in negative territory. Infineon Technologies declined by 1.96%.

German Unemployment in Focus

On Wednesday, the German economy will be in the spotlight, with German labor market numbers in focus. Weaker-than-expected unemployment figures could fuel German recessionary fears. Economists expect the German unemployment rate to remain steady at 5.9% despite expectations of a rise in unemployed persons.

US Labor Market and Manufacturing in the Spotlight

Later in the Wednesday session, JOLTs Job Openings and Job Quits will draw interest. An unexpected fall in JOLTs Job Openings and a larger-than-estimated fall in Job Quits would raise bets on a Q1 2024 Fed rate cut.

However, investors must consider US ISM Manufacturing PMI and the prices and employment sub-components. Economists forecast the ISM Manufacturing PMI to increase from 46.7 to 47.1 in December. However, economists expect the Prices PMI to fall from 49.9 to 47.5.

While rising bets on a Q1 2024 Fed rate cut would support riskier assets, materially weaker numbers could fuel jitters of a hard landing. Investors must also be mindful of the FOMC Meeting Minutes. The Minutes are out after the European closing bell.

In the futures, the DAX and the Nasdaq mini were down 50 and 19 points, respectively.

Short-Term Forecast

Near-term DAX trends will hinge on services PMIs, euro area inflation, and the US Jobs Report. Rising bets on ECB and Fed rate cuts but expectations of a mild Eurozone recession could drive buyer demand for DAX-listed stocks.

DAX Technical Indicators

Daily Chart

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

A DAX break above the Tuesday high of 16,964 would bring the December 14 ATH 17,003 into play.

On Wednesday, the focus will be on German labor market numbers, the US economic calendar, and central bank commentary.

However, a drop below the 16,650 handle would support a fall to the 16,470 support level.

The 14-day RSI reading of 71.08 shows the DAX in overbought territory. Selling pressure may intensify at the Tuesday high of 16,964.

4-Hourly Chart

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

A DAX breakout from the Tuesday high of 16,964 would support a move to the December 14 ATH 17,003.

However, a fall through the 50-day EMA would bring the 16,470 support level into play.

The 58.07 14-4 hour RSI suggests a DAX move to the 17,000 handle before entering overbought territory.

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