DAX Index: How the DAX Reacts to ECB Comments and US Inflation Reports

Highlights

• DAX saw consolidation with a 0.24% rise on Wednesday, buoyed by Tuesday’s 1.95% rally; stands strong at 15,460.
• German inflation in September softened to 4.5%, marking the lowest since the Ukraine conflict began.
• The US CPI Report will be the focal point on Thursday.

DAX Wednesday Overview

On Wednesday, the DAX gained 0.24%. Consolidating the 1.95% rally from Tuesday, the DAX ended the day at 15,460.

German Inflation and a Dovish Fed

German inflation figures for September kickstarted a positive start to the Wednesday session. The annual inflation rate softened from 6.1% to 4.5%, the softest since the start of the war in Ukraine.

Another sharp pullback in 10-year US Treasury yields offered support as dovish FOMC member speeches resonated mid-week.

Investors brushed aside the ECB Consumer Expectations Survey results for August. Consumers anticipate a modest increase in income but expect a decline in spending.

However, US producer prices limited the gains. Hotter-than-expected numbers tested bets on the Fed pausing interest rate hikes. Producer prices increased by 2.2% year-over-year in September vs. 2.0% in August. Nonetheless, the numbers failed to spook investors ahead of the US CPI Report out on Thursday.

The US equity markets made modest gains. On Wednesday, the Nasdaq Composite Index rose by 0.71%. The S&P 500 and the Dow ended the day up 0.43% and 0.19%, respectively.

The Wednesday Market Movers

Defense stock Rheinmetall led the way, rallying 2.71%. The ongoing Middle East conflict fueled demand for the stock. Auto stocks were also on the rise.

Porsche and Volkswagen saw gains of 1.25% and 1.07%, with BMW ending the day up 1.00%. Mercedes Benz Group and Daimler Truck Holding rose by 0.37% and 0.35%, respectively. Easing bets on further ECB and Fed rate hikes and stimulus plans from Beijing supported a positive demand outlook.

However, Fresenius tumbled by 7.84% in response to favorable Novo Nordisk drug trial results for treating kidney failure.

The ECB, the Fed, and US Inflation in the Spotlight

On Thursday, the ECB will be in the spotlight. Comments from ECB President Christine Lagarde, attending the IMF/World Bank Annual Meetings, need monitoring. The ECB President will attend the G20 Finance Ministers and Central Bank Governors meeting.

Comments relating to inflation, the economic outlook, and monetary policy would influence buyer appetite for DAX-listed stocks. Investors will also need to digest the ECB monetary policy meeting minutes. Investors may consider the minutes dated after recent ECB speeches.

However, the US CPI Report will influence the DAX and broader equity market trends. Economists forecast the US annual inflation rate to soften from 3.7% to 3.6% in September.

With inflation the hot topic, FOMC member commentary also warrants consideration. Recent Fed speeches will likely limit the influence of the Fed minutes from Wednesday.

The DAX and NASDAQ mini were up 59 and 43 points this morning.

Short-Term Forecast

The US CPI Report could test the buyer appetite for riskier assets, including DAX-listed stocks. The markets are betting on the Fed ending its interest rate hike cycle. However, a hotter-than-expected CPI Report may force the Fed to raise interest rates. Higher US interest rates would adversely impact the DAX and broader equity markets.

DAX Technical Indicators

Daily Chart

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

A return to 15,500 would support a DAX move to the 50-day EMA and the 15,619 resistance level. Selling pressure will likely intensify at the resistance level. The 50-day EMA is confluent with the 15,619 resistance level.

However, a break below the 15,459 support level and 200-day EMA would bring the 15,245 support level into play.

US inflation figures and news updates from the Middle East will be focal points. An unexpected pickup in US inflationary pressures and an escalation in the Middle East conflict would test buyer appetite.

The 14-day RSI reading of 50.34 supports a DAX move to the 50-day EMA before entering overbought territory.

4-Hourly Chart

The DAX remains above the 50-day EMA while hovering below the 200-day EMA, sending bullish near-term but bearish longer-term price signals. A DAX return to 15,500 would give the bulls a run at the 15,619 resistance level and 200-day EMA.

However, a break below the 15,459 support level would bring the 50-day EMA into play.

The 62.03 14-4 hour RSI reading supports a DAX move to the 15,619 resistance level before entering the overbought territory.

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