DAX Index: Navigating Market Volatility After FOMC Meeting Minutes

Highlights

• The DAX slipped by 0.01% on Tuesday, ending the session at 15,901.
• Caution left the DAX with a modest loss as investors awaited the FOMC Meeting Minutes.
• On Wednesday, investors will react to the FOMC Meeting Minutes before the ECB Financial Stability Review release.

Tuesday DAX Overview

The DAX slipped by 0.01% on Tuesday. Following a 0.11% loss on Monday, the DAX ended the day at 15,901.

ECB President Lagarde Delivers Hawkish Message

ECB President Lagarde was in focus on Tuesday. The ECB President disappointed investors betting on ECB rate cuts. Lagarde poured cold water on expectations of an April-May rate cut. The ECB President had this to say about the inflation battle,

“Are we done? No. The nature of the inflation process in the euro area means that we will need to remain attentive to risks of persistent inflation.”

FOMC Meeting Minute Jitters Leave the DAX Flat

Investor uncertainty about the Fed policy outlook also left the DAX flat-footed on Tuesday. The FOMC Meeting Minutes were out after the European closing bell.

The overnight FOMC Meeting Minutes yielded no significant surprises. However, a willingness to lift rates higher reminded investors of the ongoing battle to curb inflation. The US equity markets ended Tuesday in negative territory despite a pullback in US Treasury yields.

On Tuesday, the Nasdaq Composite Index fell by 0.59%, with the Dow and S&P 500 declining by 0.18% and 0.20%, respectively. 10-year US Treasury yield ended the Tuesday session down 0.66% to 4.395%.

The Tuesday Market Movers

Siemens Energy AG tumbled 7.93%, with the auto sector ending the session in negative territory.

BMW and Volkswagen ended the day down 2.29% and 1.82%. Porsche and Mercedes Benz Group fell by 1.71% and 1.50%.

However, Rheinmetall AG rallied 3.69% on upbeat operating margin and revenue expectations.

Fed Minutes and the ECB Financial Stability Review in Focus

On Wednesday, investors will respond to the overnight FOMC Meeting Minutes. Investors may brush aside Fed comments about lifting rates higher. Recent US inflation and retail sales figures fueled bets on a May Fed rate hike. The respective reports were out after the FOMC meeting.

However, the ECB Financial Stability Review could garner investor interest. The twice-annual review could highlight the effects of aggressive monetary policy measures on credit conditions. A deteriorating credit environment could impact banking sector stocks and stifle growth with a liquidity crunch.

Tighter credit conditions would make it more expensive for businesses to meet funding requirements. Cost-cutting exercises could adversely impact the euro area economy.

With the Financial Stability Review in focus, ECB commentary also needs monitoring. ECB Executive Board member Frank Elderson is on the calendar to speak on Wednesday.

US Jobless Claims and Consumer Sentiment in Focus

Later in the Wednesday session, US jobless claims and consumer sentiment numbers will be in focus. An uptick in jobless claims and softer-than-expected consumer sentiment figures could support bets on a Fed rate cut.

Economists forecast initial jobless claims to fall from 231k to 225k. According to preliminary numbers, the Michigan Consumer Sentiment Index declined from 63.8 to 60.5 in November.

Other stats include durable and core durable goods orders. Barring dire numbers, the US labor market and consumer sentiment will likely be the focal points.

The futures markets point to a mixed start to the Wednesday session. The DAX was up 26 points, while the Nasdaq mini was down by 11 points.

Short-Term Forecast

Market bets on a May Fed rate cut could continue to support the DAX at current levels. However, hawkish ECB chatter amidst a deteriorating macroeconomic environment could test the appetite for DAX-listed stocks. The preliminary private sector PMIs for November will influence near-term trends.

DAX Technical Indicators

Daily Chart

The DAX remained above the 50-day and 200-day EMAs, with the EMAs reaffirming bullish price signals. Significantly, the 50-day EMA crossed through the 200-day EMA, another bullish price signal.

A DAX break above the 16,004 resistance level would support a move to the trend line.

The ECB Financial Stability Review and US economic indicators are the focal points.

However, a fall through 15,850 would bring the 15,694 support level into play.

The 14-day RSI reading of 71.19 shows the DAX in overbought territory. Selling pressure could intensify at 16,000.

4-Hourly Chart

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

A break above the 16,004 resistance level would support a move to the trend line.

However, a drop below the 15,850 handle would give the bears a run at the 15,694 support level.

The 75.11 14-4 hour RSI shows the DAX in overbought territory. Selling pressure will likely intensify at 16,000.

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