The DAX rallied 1.12% on Friday, ending the session at 16,398.
Manufacturing PMIs and Fed Chair Powell fueled the Friday frenzy.
On Monday, German trade data and US factory orders are focal points.
Overview of Friday’s DAX Performance
The DAX rallied 1.12% on Friday. Following a 0.30% gain on Thursday, the DAX ended the session at 16,398.
China Manufacturing PMI Delivered a Positive Opening
On Friday, better-than-expected manufacturing sector data from China supported a positive start to the session. The Caixin Manufacturing PMI increased from 49.5 to 50.7 in November.
The DAX responded favorably to the survey. However, the Hang Seng Index slid by 1.25% despite the China PMI numbers.
Euro Area Manufacturing PMIs Improved
Euro area manufacturing sector PMI numbers offered comfort. Upward revisions to the German and Eurozone Manufacturing PMIs suggested improving sector conditions. Despite upward revisions to preliminary numbers, the manufacturing sector continued to contract across the euro area. Significantly, new orders increased at the most marked pace since June 2023.
An improving macroeconomic environment and softer inflation provided the perfect combination of a Positive start to December. Softer-than-expected inflation numbers from the euro area have fueled bets on ECB rate cuts in H1 2024.
Fed Chair Powell Delivered an End-of-Session Boost
Late in the European session, Fed Chair Powell boosted the appetite for riskier assets. Powell dismissed speculation of an H1 2024 rate cut. However, the Fed Chair said monetary policy was well into restrictive territory. The markets considered the speech dovish. 10-year US Treasury yields tumbled, while riskier assets responded positively to the comments.
On Friday, the Dow rose by 0.82%. The Nasdaq Composite Index and S&P 500 ended the day up 0.55% and 0.59%, respectively. 10-year US Treasury yields tumbled by 3.03% to 4.197%.
The Friday Market Movers
Falling government bond yields delivered broad-based gains, with auto, bank, retail, and tech stocks making solid gains.
However, Covestro led the way, rallying 5.81%. Improving manufacturing sector conditions most likely contributed to the positive session.
Gains across the auto sector were relatively modest. Mercedes Benz Group gained 0.94%. Porsche and BMW ended the session up 0.67% and 0.63%, with Volkswagen rising by 0.56%.
Deutsche Bank and Commerzbank saw gains of 0.82% and 0.93%, respectively.
German Trade Data and the ECB in Focus
On Monday, German trade data for October will garner investor interest. After the better-than-expected private sector PMIs, improving trade terms could fuel more optimism about the economic outlook.
Economists forecast the German trade surplus to widen from €16.5 billion to €17.1 billion. Significantly, economists expect exports to increase by 1.1% vs. a 2.4% decline in September.
After the recent inflation and manufacturing PMI numbers, ECB commentary needs monitoring. ECB President Christine Lagarde is on the calendar to speak. Investors should pay close attention to references regarding inflation numbers, the economic outlook, and interest rates. ECB Executive Board members Frank Elderson and Luis de Guindos will also deliver speeches on Monday.
US Factory Orders in Focus
On Monday, US factory orders need consideration. In November, the US manufacturing contracted at a more marked pace, supporting bets on a Q1 2024 Fed rate cut. A larger-than-expected fall in factory orders would further drive Fed rate cut bets.
Economists forecast factory orders to decline by 2.6% in October after rising by 2.8% in September.
Beyond the numbers, Fed commentary also needs monitoring throughout the session. Dovish forward guidance would support the DAX at current levels.
The futures markets pointed to a mixed start to the Monday session. The DAX was up 26 points, while the Nasdaq mini was down 55 points.
Near-term trends for the DAX will hinge on sentiment toward ECB and Fed policy goals. Economic indicators from Germany need consideration this week. However, the US ISM Non-Manufacturing PMI and the US Jobs Report could prove pivotal for riskier assets.
DAX Technical Indicators
The DAX remained above the 50-day and 200-day EMAs, with the EMAs reaffirming bullish price signals.
A DAX break above the 16,470 resistance level would support a move through 16,500 to target 17,000.
German trade data, US factory orders, and central bank speeches are the focal points on Monday.
However, a drop below the 16,300 handle would give the bears a run at the 16,290 support level.
The 14-day RSI reading of 79.67 shows the DAX in overbought territory. Selling pressure could intensify at the 16,470 resistance level.
DAX 041223 Daily Chart
The DAX sat above the 50-day and 200-day EMAs, with the EMAs reaffirming bullish price signals.
A DAX move to 16,400 would give the bulls a run at the 16,470 resistance level.
However, a fall through the 16,300 handle would bring the 16,290 support level into play.
The 83.00 14-4 hour RSI shows the DAX in overbought territory. Selling pressure could intensify at current levels.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.