DAX Index: Q4 Eurozone Stats, the ECB and the FED in Focus

Highlights

• The DAX declined by 0.92% on Tuesday, closing the session at 16,881.
• On Wednesday, the Eurozone economy and ECB commentary will influence market risk sentiment.
• Later in the session, Fed speeches also need consideration.

Overview of the DAX Performance on Tuesday

The DAX declined by 0.92% on Tuesday. Reversing a 0.65% gain from Monday, the DAX ended the Monday session at 16,881.

ZEW Economic Sentiment Failed to Influence Risk Appetite

On Tuesday, ZEW Economic Sentiment numbers for Germany and the Eurozone beat forecasts. Sentiment among analysts improved in February despite concerns about the German economy.

The German ZEW Economic Sentiment Index increased from 15.2 to 19.9, with the Eurozone ZEW Economic Sentiment Index up from 22.7 to 25.0. Economists forecast the German Index to rise to 17.5 and the Eurozone Index to fall to 20.1.

Investor caution ahead of the US CPI Report overshadowed the upbeat numbers.

The US CPI Report and Bets on a Fed Rate Cut

On Tuesday, a hotter-than-expected US CPI Report impacted the buyer demand for riskier assets. The US annual inflation rate declined from 3.4% to 3.1% in January, with the core inflation rate holding steady at 3.9%. Economists forecast annual and core inflation rates of 2.9% and 3.7%, respectively.

The CPI Report sank bets on March and May Fed rate cuts, leaving the US equity markets with heavy losses. According to the CME FedWatch Tool, the chances of a March Fed rate cut fell from 16.0% to 8.5%. The probability of a 25-basis point May Fed rate cut briefly fell from 52.2% to 35.2%.

On Tuesday, the Nasdaq Composite slid by 1.80%. The Dow and S&P 500 ended the session down 1.35% and 1.37%, respectively.

Corporate earnings played second fiddle to the US CPI Report. The Coca-Cola Company (KO) and Shopify Inc. (SHOP) were among the big names to release earnings results.

The Tuesday Market Movers

Infineon Technologies tumbled 4.96%, with SAP sliding by 2.98% on the US CPI Report-fueled tech sector rout. Siemens Energy AG ended the session down 2.07%.

Retail-linked stocks were also among the worst performers on the shift in sentiment toward the Fed rate path. Zalando SE and Adidas declined by 1.78% and 2.09%, respectively.

Auto stocks joined the broader market in negative territory. BMW fell by 1.23%, with Volkswagen ending the day down 0.95%. Porsche and Mercedes-Benz Group declined by 0.58% and 0.32%, respectively.

The Wednesday Session: The Eurozone Economy and the ECB

On Wednesday, the second estimate Q4 GDP and prelim Q4 employment change figures for the Eurozone warrant investor attention.

Revisions to the preliminary GDP numbers could have more impact. However, labor market data for Q4 could also move the dial. Upward revisions to Q4 GDP numbers and better-than-expected labor market figures could reduce bets on an April ECB rate cut.

According to the first estimate of GDP numbers, the Eurozone economy stalled in Q4, quarter-on-quarter, while expanding by 0.1% year-on-year.

Economists forecast employment to increase by 0.3% in Q4 quarter-on-quarter versus 0.2% in Q3. However, economists expect employment to increase by 1.1% year-over-year compared with 1.3% in Q3.

Other stats include industrial production numbers for the Eurozone. However,  the Q4 data may have more impact.

Beyond the numbers, investors must also track ECB commentary. ECB Vice President Luis de Guindos and Executive Board member Piero Cipollone are on the calendar to speak.

Fed Speakers and Corporate Earnings in Focus

Later in the Wednesday session, Fed speeches need consideration. Reactions to the US CPI Report and views on the timelines for Fed interest rate cuts could move the dial.

FOMC member Austan Goolsbee is on the economic calendar to speak. However, there are no US economic data to influence market risk sentiment.

Beyond the economic calendar, US corporate earnings will also garner investor interest. Cisco Systems (CSCO) is among the big names to release earnings results on Wednesday.

Short-term Forecast

Near-term trends for the DAX will hinge on corporate earnings, euro area inflation, and central bank commentary. The hotter-than-expected US CPI Report could increase sensitivity to ECB warnings about cutting rates too early. Investors largely ignored Fed comments about needing patience vis-à-vis rate cuts.

On Wednesday, the DAX futures and the Nasdaq mini were down 50 and 5 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX sat above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX return to 17,000 would support a breakout from the all-time high of 17,050 to target 17,100.

On Wednesday, euro area economic data, corporate earnings, and central bank commentary warrant investor attention.

However, a drop below the 16,850 handle would bring the 50-day EMA into play.

The 14-day RSI at 53.21 indicates a DAX rise to 17,100 before entering overbought territory.

4-Hourly Chart

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

A DAX break above the 50-day EMA would support a move to the all-time high of 17,050.

However, a break below the 16,850 handle would support a fall through the 16,750 handle.

The 14-period 4-hour RSI at 45.36 indicates a fall to the 16,700 handle before entering oversold territory.