ECB Chief Economist Philip Lane and US Consumer Confidence in focus today.
DAX Monday Overview
On Monday, the DAX declined by 0.98%. After a 0.09% loss on Friday, the DAX ended the day at 15,406.
German Business Sentiment Overshadowed by China and the ECB
German business sentiment beat forecasts on Monday but failed to impress. Business sentiment across the services sector deteriorated for a sixth month, with business sentiment across the construction sector the worst since January 2009.
One highlight was a pickup in the German Ifo Business Expectations Index, which rose from 82.7 to 82.9.
However, the EUR/USD fell by 0.49% on the session, with bond yields rising in response to ECB commentary.
Francois Villeroy de Galhau reportedly spoke about the risks of doing too much and too little. While erring on the side of caution, the Governor of the Bank of France left the door ajar for further rate hikes.
ECB President Lagarde noted that interest rates may have peaked but will likely remain high until the ECB tames inflation.
The higher-for-longer interest rate theme and the risk of further rate hikes dampened demand for riskier assets.
Risk aversion from China spilled over to the European session, adding to the gloomy mood.
However, the US equity markets avoided another session in negative territory. Investors brushed aside weaker US economic indicators and the threat of a US government shutdown.
The Chicago Fed National Activity Index unexpectedly fell from 0.7 to -0.16. Economists forecast an increase to +0.15.
On Monday, the S&P 500 and the NASDAQ Composite Index saw gains of 0.40% and 0.45%, respectively. The Dow rose by 0.13%.
The Monday Market Movers
Auto stocks were among the worst performers. BMW and Mercedes Benz Group saw losses of 2.01% and 1.41%. Volkswagen and Continental declined by 1.07% and 0.95%, respectively, with Porsche falling by 0.82%.
The higher-for-longer ECB interest rate outlook and macroeconomic headwinds weighed on the auto sector and the broader market.
ECB Chief Economist Philip Lane in the Spotlight
Market sensitivity to ECB commentary has intensified following the dovish ECB rate hike on September 14.
ECB Chief Economist Philip Lane speaks at a Joint European Central Bank – Banque de France – Centre for Economic Policy Research Conference.
Investors will likely respond to comments about the economic outlook, inflation, and monetary policy. A hint at higher interest rates would spook the markets.
US Consumer Confidence a US Economy Litmus Test
Later today, the US CB Consumer Confidence Index will garner investor interest. Economists forecast the Index to decline from 106.1 to 105.9 in September. However, a larger-than-expected decline would signal a possible pullback in consumer spending.
Recent US economic indicators have shown early cracks in the US economy. A slump in consumer confidence would weigh on the appetite for riskier assets.
However, investors should also monitor FOMC commentary. A hawkish Fed and a weakening US macroeconomic environment would raise the prospects of a hard landing.
On the political front, investors should also monitor talks from Capitol Hill and the increasing threat of a US government shutdown.
This morning, the DAX and NASDAQ mini were down 22 and 65 points, respectively. Losses across the Asian equity markets contributed to the pullback. China’s economic woes and hawkish central bank commentary are headwinds.
The near-term bearish trend will likely remain intact. Jitters over the Chinese economy and hawkish ECB and Fed commentary remain headwinds. The ongoing threat of a US government shutdown is another curveball for investors to consider. A shift in ECB forward guidance and easing fears of a hard landing would support a pickup in buyer appetite.
DAX Technical Indicators
The DAX sat below the 50-day and 200-day EMAs, sending bearish price signals. A return to sub-15,400 would support a DAX move to the 15,245 support level. A hawkish ECB Chief Economist would weigh on buyer appetite.
However, a break above the 15,459 resistance level and 200-day EMA would support a move toward the 15,619 resistance level. US consumer confidence figures must ease fears of a slump in consumption but avoid fueling bets on a Fed rate hike to support a breakout session.
The 14-Daily RSI reading of 36.17 supports a DAX fall to the 15,245 support level before entering oversold territory.
DAX 260923 Daily Chart
The DAX, sitting below the 50-day and 200-day EMAs, reaffirms bearish price signals. A DAX fall to sub-15,400 would support a break below the 15,245 support level.
However, a break above the 15,459 resistance level would give the bulls a run at the 15,500.
The 33.15 RSI reading indicates a DAX fall to sub-15,400 before entering oversold territory.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.