Dax Index News: Forecast Hinges on Powell’s Speech, Russia-Ukraine Peace Progress

DAX Gains Capped As Fed Policy Uncertainty Intensifies

US economic indicators deepened uncertainty over Fed Chair Powell’s upcoming Jackson Hole speech, overshadowing upbeat German data. The DAX edged 0.07% higher on Thursday, August 21, partially reversing Wednesday’s 0.60% loss to close at 24,293.

Germany’s HCOB Manufacturing PMI rose from 49.1 in July to a 38-month high of 49.9 in August. New orders across the manufacturing sector increased at the sharpest pace since March 2022, easing concerns about US tariffs slowing the economy. The DAX rose to a session high of 24,306 in response to the data before briefly dropping to a session low of 24,180.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, remarked:

“Germany’s economy has been growing throughout the summer so far, and the pace of expansion has even picked up slightly. While we’re talking about modest gains here, this trend signals resilience – considering the headwinds like U.S. tariffs, geopolitical uncertainty, and relatively high long-term interest rates.”

Defense Stocks Lead; Banks Also Gain on Credit Demand Outlook

Anticipation of a surge in demand for military equipment lifted defense stocks. Rheinmetall rallied 3.27%, while MTU Aero and Airbus Group rose 0.34% and 1.17%, respectively.

Bank stocks continued to draw bids. Upbeat economic indicators signaled a potential pickup in demand for credit, potentially boosting earnings. Commerzbank and Deutsche Bank posted gains of 2.93% and 0.91%, respectively.

German Economy in the Spotlight

Ahead of the European opening bell on Friday, August 22, finalized German GDP numbers will draw interest. The economy contracted 0.1% quarter-on-quarter in Q2 after expanding 0.3% in the previous quarter. An upward revision could lift sentiment. However, August’s PMI numbers could limit the effect of any downward revision.

While the GDP numbers will influence risk sentiment, Russia-Ukraine peace talks remain a key focal point. Fresh Russian attacks and President Putin’s reported demands that Ukraine cede the Eastern Donbas region and abandon plans to join NATO tested hopes for a peace deal. Stalled talks and an escalation in the Ukraine war could weigh on sentiment.

Russia-Ukraine peace talks and speculation about Powell’s speech overshadowed news of the US and the EU ironing out a framework for the trade deal.

Wall Street Dips as Fed Rate Cut Expectations Wane

US economic data fueled fears of a more hawkish Fed Chair Powell policy stance, weighing on risk assets. The Dow dropped 0.34% on Thursday, August 21, while the Nasdaq Composite Index and the S&P 500 declined 0.34% and 0.40%, respectively.

Initial jobless claims increased to 234k (week ending August 16), up from 224k (week ending August 9), signaling a cooling labor market. However, private sector PMIs tempered expectations of a September Fed rate cut.

The all-important S&P Global Services PMI slipped from 55.7 in July to 55.4 in August, while the Manufacturing PMI jumped to 53.3 (July: 49.8). Notably, the rate of job creation was the sharpest since January, while service sector price inflation was the highest since August 2022. Given that services inflation is the key contributor to national inflation, the upswing in prices will draw Fed Chair Powell’s attention.

The PMI data tempered expectations of a September Fed rate cut, weighing on risk assets. According to the CME FedWatch Tool, the probability of a September Fed rate cut fell from 82.4% on August 20 to 75.5% on August 21.

Fed Chair Powell Takes Center Stage

Later in Friday’s session, Fed Chair Powell’s highly anticipated speech at the Jackson Hole Symposium will be the key event.

Cooling labor market signals, a resilient US economy, and rising inflationary pressures leave investors cautious ahead of the speech. The DAX could face heavy selling pressure if Fed Chair Powell raises concerns about inflation. On the other hand, a focus on a cooling labor market may revive bets on multiple Fed rate cuts and lift sentiment.

Outlook: Key Catalysts for the DAX

The DAX’s near-term outlook hinges on US-Russia peace talks and Fed Chair Powell’s speech.

• Bullish Case: Progress toward a Russia-Ukraine peace deal or a Fed Chair Powell. These factors could drive the DAX toward the 24,500 resistance level and potentially the all-time high of 24,639.
• Bearish Case: Stalled peace talks or a hawkish Fed Chair. These scenarios may push the DAX toward the crucial 24,000 support level.

Ahead of the European opening bell on August 22, the DAX futures fell 15 points, while the Nasdaq 100 dropped 21 points. Futures market trends reflected investor caution over Fed Chair Powell’s policy outlook.

DAX Technicals

Despite a mixed week, the DAX trades above its 50-day and 200-day EMAs, signaling a bullish bias.

• Upside Target: A breakout above the 24,500 level could allow the bulls to target the all-time high of 24,639. A sustained move above 24,639 may bring 25,000 into sight.
• Downside Risk: A break below 24,150 could pave the way to the 24,000 support level and the 50-day EMA. If breached, 23,500 would be the next key support level.

DAX Outlook Summary: Geopolitics, US Data, and Central Bank Rhetoric

Traders should track Ukraine war-related news and Fed Chair Powell’s views on inflation, the labor market, and interest rates. Traders should brace for volatility if peace talks stall and Powell puts rate cuts on ice.

Explore our exclusive forecasts to assess whether improving trade sentiment could lift the DAX to new highs. Refer to our latest forecasts and macro insights here for further analysis, and consult our economic calendar.