Dax Index: Navigating Economic Crosswinds, Dax Stocks Tested

Highlights

• The DAX downturn continued, marking its fifth day in decline, landing at 15,719 on Thursday.
• US jobless claims defy expectations, fanning the flames of potential Fed rate hikes.
• DAX Futures up, but euro recession fears linger.

DAX Falls for the Fifth Consecutive Session

The DAX extended the losing streak to five sessions on Thursday, declining by 0.14%. Following a 0.19% loss on Wednesday, the DAX ended the day at 15,719.

Euro Area Economic Indicators Send Grim Signals

It was another tough session for the European markets. German industrial production figures for July gave little respite from the current string of woeful economic indicators. Production fell by 0.8% following a 1.4% decline in June.

Eurozone GDP numbers for the second quarter added to the gloomy mood. According to third estimates, the Eurozone economy expanded by 0.1% in the second quarter. Year-over-year, the economy grew by 0.5% versus 1.1% in the first quarter.

Significantly, the GDP figures set investors at a lower base when projecting slowing economic activity in the third quarter.

US Jobless Claims Fuel Fed Rate Hike Bets

US Jobless claims were better than expected, raising bets on a final Fed rate hike. The unexpected fall in jobless claims pointed to tight labor market conditions. Tighter labor market conditions support wage growth, fueling consumption and demand-driven inflationary pressures.

The Thursday Market Movers

Adidas was the worst-performing stock, tumbling by 3.23%. However, tech and auto stocks were also at the bottom of the table. Increasing fear of a euro area recession and the threat of further Fed rate hikes weighed.

Infineon Technologies fell by 2.63%, with Continental (-2.29%), Volkswagen (-1.62%), Mercedes-Benz Group (-1.42%), BMW (-1.32%), and Porsche (-1.04%) also struggling.

Commerzbank continued to face the wrath of investors after Barclays downgraded the stock to ‘underweight.’ Commerzbank fell by 1.74%, while Deutsche Bank gained 0.14%.

Today’s Session

Finalized August inflation figures for Germany will draw interest. According to prelim numbers, the annual inflation rate softened from 6.2% to 6.1%. Sticky inflation keeps pressure on the ECB to consider further interest rate hikes. However, the deteriorating macroeconomic environment will give the ECB doves more voice.

On Wednesday, the Organization for Economic Co-operation and Development (OECD) reportedly called for the ECB to push rates higher.

The DAX Futures was up 23 points this morning.

US Fed Speakers to Test Risk Appetite

FOMC member speakers will be in focus today. Following better-than-expected service sector and labor market numbers, investors are raising bets on a final Fed rate hike.

However, Fed speakers must align with the markets to reinforce the expectations of another move. Voting FOMC member Michael Barr is on the calendar to speak today. Hawkish comments vis-à-vis interest rates would test support for riskier assets.

Short-Term Forecast

While the DAX Futures signals a positive open, the rising threat of a euro area recession will test buyer appetite. However, no US economic indicators are on the calendar to fuel Fed rate hike bets.

DAX Technical Indicators

Daily Chart

The DAX remained below the trend line after a brief break above the trend line to target the 50-day EMA before easing back. A break above the trend line and a move through the Thursday high of 15,795 would give the bulls a run at the 50-day EMA.

However, German inflation numbers must align with prelim or softer to provide support. An upward revision to prelim figures would see the DAX fall through the 15,663 support level to bring sub-15,500 into view.

The 14-Daily RSI reading of 44.02 gives the DAX room to return to sub-15,500 before entering oversold territory.

4-Hourly Chart

The DAX remains below the 50-day and 200-day EMAs, reaffirming bearish price signals. Softer German inflation numbers would support a breakout from the trend line to target the 50-day EMA. However, Fed comments must be DAX-friendly to deliver a move through the Thursday high of 15,795.

Hawkish Fed comments and an upward revision to German inflation figures would bring the 15,663 support level and sub-15,500 into view.

The 42.07 RSI reading indicates the DAX has the room return to sub-15,600 before entering oversold territory.

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