DAX Index: German Producer Prices and the ECB in Focus

Highlights

• The DAX gained 0.83% on Thursday, ending the session at 16,567.
• Less hawkish Fed comments countered the ECB monetary policy meeting minutes.
• On Friday, German producer prices, US consumer sentiment, and central bank commentary need consideration.

Overview of the DAX Performance on Thursday

The DAX gained 0.83% on Thursday. Reversing a 0.84% loss on Wednesday, the DAX ended the session at 16,567.

ECB Monetary Policy Meeting Minutes and Central Bank Guidance

On Thursday, the ECB monetary policy meeting minutes drew investor interest. Recent comments from ECB President Christine Lagarde, Chief Economist Philip Lane, and members reduced bets on an H1 ECB rate cut.

The minutes showed ECB member concerns about the economy. There were no discussions about rate cuts, aligning with recent ECB speeches that warned the markets about betting on ECB rate cuts.

However, the minutes did not impact investor risk sentiment. The markets are mindful of the economic uncertainty and ECB interest rate goals.

There were no economic indicators for Germany or the Eurozone for investors to consider. Dip buyers returned, ending a three-day losing streak.

US Jobless Claims and Less Hawkish Fed Chatter

On Thursday, US jobless claims drew investor interest. Initial jobless claims declined from 203k to 187k in the week ending January 13. The numbers supported expectations of a soft landing. However, tighter labor market conditions could delay Fed rate cuts until Q2 2024.

The Philly Fed Manufacturing Index signaled weakness across the manufacturing sector. In January, the Index increased from -12.8 to -10.6.

However, FOMC member Raphael Bostic provided some market comfort, taking a less hawkish stance on interest rates. Bostic discussed cutting rates sooner if inflation falls at a more marked pace than expected.

On Thursday, the Nasdaq Composite Index rallied 1.35%. The S&P 500 and the Dow ended the day up 0.86% and 0.54%, respectively. The US equity market gains came despite 10-year US Treasury yields increasing by 0.97%, ending the session at 4.146%.

The Thursday Market Movers

Tech stocks were the beneficiary of less hawkish Fed chatter. Infineon Technologies and Siemens Energy AG rallied 4.81% and 3.44%, respectively. Rheinmetall AG was also among the front-runners on rising geopolitical risks, gaining 2.58%.

Online retailer Zalando SE found much-needed support, gaining 1.23%. However, Adidas ended the session down 0.34% as investors fretted about recessionary risks.

It was also a mixed session for the auto sector. Mercedes-Benz Group rose by 0.88%. BMW and Porsche gained 0.30% and 0.36%, respectively. However, Volkswagen bucked the trend, falling 0.52%.

German Producer Prices and the ECB in Focus

On Friday, German producer prices will garner investor interest. A continued fall in producer prices could signal a deteriorating demand environment. Producers reduce prices in a more competitive environment.

Weaker-than-expected numbers would fuel fears of a longer German recession. However, a downward trend in producer prices would impact consumer price inflation trends. A downward trend in consumer price inflation could incentivize the ECB to begin discussing rate cuts.

Economists forecast German producer prices to decline by 0.5% in December after falling by 0.5% in November.

Beyond the numbers, investors must monitor ECB commentary. However, ECB President Christine Lagarde and Executive Board member Elizabeth McCaul are on the calendar to speak on Friday.

Consumer Sentiment and FOMC Member Chatter

On Friday, US consumer sentiment warrants investor attention. A pickup in consumer sentiment would signal a positive outlook for consumer spending. Upward trends in consumer spending could fuel demand-driven inflation and influence sentiment toward Fed rate cuts.

Economists forecast the Michigan Consumer Sentiment Index to increase from 69.7 to 70.0 in January. Investors must also consider sub-components, including inflation expectations and employment.

However, investors must also monitor FOMC member commentary.

Short-Term Forecast

Near-term DAX trends hinge on Fed and ECB commentary. Reducing bets on ECB and Fed rate cuts could pressure stocks further.  Rising investor fear of a Eurozone recession is another headwind. However, corporate earnings will also influence the appetite for DAX-listed stocks. Upbeat earnings would counter the effects of less dovish central bank rate paths.

In the futures, the DAX and the Nasdaq mini were up 49 and 57 points, respectively.

DAX Technical Indicators

Daily Chart

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

A DAX return to the 16,600 handle would give the bull a run at the 16,800 handle.

German producer prices, US consumer sentiment, and central bank commentary need consideration.

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

The 14-day RSI reading of 50.95 indicates a DAX return to 16,800 before entering overbought territory.

4-Hourly Chart

The DAX hovered below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price trends.

A DAX breakout from the 50-day EMA would support a move toward the 16,800 handle.

However, a break below the 16,470 support level would give the bears a run at the 16,290 support level.

The 48.81 14-4 hour RSI indicates a DAX drop to the 16,290 support level before entering oversold territory.

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