DAX Index: Will it Break 17,000 Amidst ECB and Fed Influences?

Highlights

• The DAX gained 0.75% on Wednesday, ending the session at 16,656.
• A slump in German factory orders briefly led the DAX into negative territory on Wednesday.
• On Thursday, German industrial production, Eurozone GDP, the ECB, and the US labor market are focal points.

Overview of the DAX Performance on Wednesday

The DAX gained 0.75% on Wednesday. Following a 0.78% rise on Tuesday, the DAX ended the Monday session at 16,656. Significantly, the DAX struck a new ATH of 16,727.

German Factory Orders Slide in October

On Wednesday, German factory orders surprised investors, tumbling 3.7% in October. Economists expected a 0.2% increase. The numbers briefly sent the DAX into negative territory. However, the weaker numbers supported bets on ECB rate cuts in H1 2024.

Comments from ECB Executive Board member Isabel Schnabel, previously an ECB hawk, resonated on Wednesday. This week, Schnabel reportedly said,

“The most recent inflation number has made a further rate increase rather unlikely.”

US Labor Market Drives Fed Rate Cut Bets

On Wednesday, US labor market numbers influenced Fed policy bets. The ADP reported a 103k increase in employment in November vs a 106k rise in October. Softer-than-expected numbers raised bets on a Q1 2024 Fed rate cut.

According to the CME FedWatch Tool, there is a 52.9% probability of a 25-basis point Fed rate cut and a 7.3% chance of a 50-basis point rate cut in March 2024. One week before the ADP numbers, the probability of a 25-basis point rate cut was 48.6%.

10-year US Treasury yields ended the Wednesday session down 1.46% to 4.106%.

However, the US equity markets ended the Wednesday session in negative territory. The Nasdaq Composite Index declined by 0.58%, with the Dow and the S&P 500 falling by 0.19% and 0.39%.

The Wednesday Market Movers

Auto stocks were among the top performers for the second session.

Volkswagen rallied 5.82%, with Porsche and Daimler Truck Holding seeing gains of 3.10% and 2.30%, respectively. BMW and Mercedes Benz Group ended the session up 1.73% and 1.50%.

Rising bets on interest rate cuts and falling government bond yields drove buyer demand for auto and tech stocks.

Infineon Technologies rallied 2.51%.

However, Merck tumbled by 13.06%. Investors reacted to news of its multiple sclerosis drug failing late-stage trials.

German Industrial Production, Eurozone GDP, and the ECB

On Thursday, German industrial production and Eurozone GDP numbers for Q3 will draw investor interest. An unexpected fall in production could refuel fears of a prolonged German economic recession. Economists forecast industrial production to rise by 0.2% in October.

However, Eurozone GDP numbers for the third quarter also warrant consideration. Downward revisions would support a less hawkish ECB rate path. However, weaker numbers could also raise fears of a deeper recession.

Investors must consider ECB commentary. ECB President Christine Lagarde is on the calendar to speak today. Hints of rate cut discussions would fuel buyer demand for DAX-listed stocks.

US Jobless Claims in Focus

On Thursday, US jobless claims garner investor interest. A larger-than-expected rise in initial jobless claims would raise bets on a Q1 2024 Fed rate cut. Sentiment toward ECB and Fed policy goals sent the DAX to a new ATH 16,727 on Wednesday. However, a marked deterioration in US labor market conditions could reignite fears of a hard landing and impact riskier assets.

Economists forecast initial jobless claims to increase from 218k to 222k in the week ending December 2.

The futures markets pointed to a negative start to the Thursday session. The DAX and the Nasdaq mini were down 75 points and 2 points, respectively.

Trade data from China will likely test the appetite for riskier assets early in the European session. While exports unexpectedly increased in November, imports declined, suggesting a weak demand outlook.

Short-Term Forecast

Near-term trends for the DAX will hinge on US labor market numbers. While softer labor market figures would fuel bets on Fed rate cuts, a marked deterioration in labor market conditions could fuel fears of a hard landing. The risk of a hard landing would adversely impact the DAX.

DAX Technical Indicators

Daily Chart

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

A DAX break above the Wednesday ATH of 16,727 would bring the 17,000 psychological resistance level into view.

ECB commentary, euro area economic indicators, and US jobless claims will influence buyer demand.

However, a break below the 16,470 support level would support a fall toward the 16,290 support level.

The 14-day RSI reading of 83.75 shows the DAX in overbought territory. Selling pressure could intensify at the Wednesday ATH of 16,727.

4-Hourly Chart

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

A DAX breakout from the Wednesday ATH of 16,727 would give the bulls a run at 17,000.

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

The 85.58 14-4 hour RSI shows the DAX in overbought territory. Selling pressure may intensify at the all-time high of 16,727.

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