DAX Index: Services PMIs, Inflation, and the US Labor Market in Focus

Highlights

• The DAX slid by 1.38% on Wednesday, ending the session at 16,538.
• On Thursday, French and German inflation will be the focal point amidst central bank policy uncertainty.
• Service sector PMIs and the US labor market also warrant investor consideration.

Overview of the DAX Performance on Wednesday

The DAX slid by 1.38% on Wednesday. Reversing a 0.11% gain from Tuesday, the DAX ended the Wednesday session at 16,538.

German Unemployment Inches Higher

On Wednesday, the German labor market was in focus. The German unemployment rate rose from 5.8% to 5.9% in December. However, unemployed persons increased from 2.698 million to 2.703 million. Economists forecast an increase to 2.732 million.

The less-than-expected increase in unemployed persons provided little comfort. Investors turned cautious, with the markets waiting for more decisive guidance on ECB rate cuts.

Hawkish Fed Chatter and US Data Deliver Fed Rate Cut Uncertainty

On Wednesday, FOMC voting member Thomas Barkin warned rate hikes remained on the table. Barkin spoke before the FOMC Meeting Minutes out after the European closing bell.

US economic indicators signaled relatively steady labor market conditions before the all-important US Jobs Report. US manufacturing PMI numbers and JOLTs Job Openings contributed to the losses.

On Wednesday, the US equity markets responded to the stats and hawkish Fed commentary. The Nasdaq Composite Index declined by 1.18%, with the Dow and S&P 500 falling by 0.76% and 0.80%, respectively.

The Wednesday Market Movers

Siemens Energy AG slid by 6.39%, with Infineon Technologies down 3.82% on hawkish Fed comments and the Nasdaq losses.

Auto stocks contributed to the session’s losses on monetary policy uncertainty. BMW fell by 2.23%, with Volkswagen and Mercedes-Benz Group declining by 1.79% and 1.75%, respectively. Porsche ended the session down 1.75%.

However, recession jitters continued to weigh on retail-linked stocks. Online regional retailer Zalando SE slid by 3.58%, with Adidas ending the day down 1.68%.

Euro Area Inflation and Services in Focus

On Thursday, inflation figures from France and Germany warrant investor attention. A pickup in inflationary pressures could delay ECB discussions about interest rate cuts. Significantly, economists forecast Germany’s annual inflation rate to accelerate from 3.2% to 3.7% in December.

However, investors must also consider services PMIs. Downward revisions to German and Eurozone PMIs could fuel bets on a more prolonged Euro area recession. Higher inflation and a more marked contraction across the services sector could impact the demand for DAX-listed stocks.

According to preliminary numbers, the German Services PMI fell from 49.6 to 48.4. The Eurozone Services PMI declined from 48.7 to 48.1.

US Services and Labor Market in the Spotlight

Later in the Thursday session, ADP employment change, jobless claims, and Services PMIs will draw investor interest.

Tight labor market conditions could force the Fed to delay rate cuts to Q2 2024. A more hawkish Fed rate path would affect market risk sentiment. Economists forecast the ADP to report a 115k increase in employment vs. 103k in November. Notably, economists expect initial jobless claims to fall from 218k to 216k in the week ending December 30.

Upward revisions to the preliminary S&P Global Services PMI would also support a more hawkish Fed rate path. According to the preliminary survey, the Services PMI increased from 50.8 to 51.3.

Beyond the numbers, investors must consider FOMC member commentary after the hawkish Fed Minutes.

In the futures, the DAX and the Nasdaq mini were up 1 and 13 points, respectively.

Short-Term Forecast

Near-term DAX trends will depend on inflation, the services PMIs, and the US Jobs Report. Falling bets on ECB and Fed rate cuts and expectations of a Eurozone recession could deliver further losses for the DAX.

DAX Technical Indicators

Daily Chart

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

A DAX move through the Wednesday high of 16,784 would give the bulls a run at the December 14 ATH 17,003.

On Thursday, euro area inflation and services PMIs, the US economic calendar, and central bank commentary are in focus.

However, a fall through the 16,470 support level would bring the 16,290 support level into play.

The 14-day RSI reading of 53.54 suggests a DAX return to 17,000 before entering overbought territory.

4-Hourly Chart

The DAX sat below the 50-day EMA while holding 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 Wednesday high of 16,784.

However, a fall through the 16,470 support level would give the bears a run at the 16,290 support level.

The 35.38 14-4 hour RSI indicates a DAX drop below the 16,470 support level before entering oversold territory.

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