DAX Set for a Bearish Open as China Services PMI Weighs

Highlights

• It was another bearish session for the DAX on Tuesday, falling 0.26% to end the day at 16,039.
• Risk aversion stemming from recessionary jitters and US-China tensions weighed on investor sentiment.
• Later today, euro area services, composite PMIs, and US factory orders will draw interest.

It was a bearish Tuesday session for the DAX, which fell by 0.26%. Following a 0.41% loss on Monday, the DAX ended the day at 16,039. Despite the bearish session, the DAX avoided sub-16,000 for the second time since June 21.

Economic indicators from Germany sent more bearish signals as investors considered disappointing manufacturing PMI numbers for June.

There were no US economic indicators for investors to consider, with the US markets closed for the Fourth of July holiday. However, hawkish Fed bets remained a bugbear for the European markets.

Earlier today, the China Caixin services PMI numbers set the tone. The Services PMI fell from 57.1 to 53.9. Economists forecast a fall to 56.2. As a result of the weaker Caixin Manufacturing PMI and Services PMI, the Chinese Composite PMI declined from 55.6 to 52.5.

Economic Indicators Weighed on Investor Sentiment

It was a quiet Tuesday session, with the US markets closed for the Fourth of July holiday.

However, economic indicators from Germany delivered more doom and gloom for investors and the ECB to digest.

In May, the German trade surplus narrowed from €16.5 billion to €14.4 billion. Economists forecast a €17.5 billion surplus. Exports fell by 0.1%, while imports increased by 1.7%.

The trade data followed finalized manufacturing PMI numbers from Friday, which were also DAX-negative. In June, the German manufacturing PMI fell from 43.2 to 40.6 (Prelim: 41.0).

The Market Movers

It was a mixed Tuesday session for the auto sector. Continental AG bucked the trend, rising by 0.33%. However, Mercedes-Benz Group fell by 1.18%, with BMW and Porsche seeing losses of 0.34% and 0.49%, respectively. Volkswagen declined by a more modest 0.21%.

It was a bearish session for the banks. Commerzbank and Deutsche Bank ended the day down 1.02% and 0.83%, respectively.

The Day Ahead for the DAX

It is a busy day ahead on the European economic calendar.

Service sector PMIs for Italy and Spain and finalized services and composite PMIs for France, Germany, and the Eurozone will draw interest today.

After weaker manufacturing PMIs from Germany and Italy, a bearish set of service sector PMI surveys would fuel recessionary jitters. According to prelim figures, the Eurozone Services PMI fell from 55.1 to 52.4 in June.

With the private sector in the spotlight, investors should monitor ECB chatter throughout the day. However, no ECB Executive Board Members are on the calendar to speak today, leaving commentary with the media to move the dial.

While no ECB Executive Board Members are on the calendar, the ECB will release Consumer Expectation Survey results for May. The April survey revealed a sharp decline in consumer inflation expectations but also for income growth and spending growth. A shift in sentiment toward the economic outlook would draw interest.

In the April survey, consumer expectations for economic growth over the next 12 months became less bearish.

It is a quiet day on the US economic calendar. After the Fourth of July holiday, US factory orders will be in focus this afternoon. After the disappointing ISM Manufacturing PMI number, an unexpected fall in factory orders would test the appetite for the dollar.

FOMC member commentary would need consideration as investors consider post-summer plans.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (16,025). The 50-day EMA pulled away from the 200-day EMA, sending bullish signals.

A hold above the 50-day EMA would support a return to 16,200 and give the bulls a run at the lower level of the 16,330 – 16,380 resistance range. However, a fall through the 50-day EMA (16,025) would bring the 200-day EMA (15,841) and the upper level of the 15,820 – 15,780 support range into view.

The 14-4H RSI sits at 51.37, sending moderately bullish signals and supporting a return to 16,200 to target the 16,330 – 16,380 resistance range.

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