DAX Set for a Bearish Open on Disappointing China Stats

It was a choppy start to the week for the DAX. On Monday, the DAX gained 0.02% to end the day at 15,917.

While euro area and US economic indicators drew interest, EU Economic Forecasts and US debt ceiling talks provided direction.

Significantly, the European Commission raised its euro area economic growth forecast from 0.9% to 1.1% in 2023 and 1.5% to 1.6% in 2024. While the markets welcomed the upward revisions to growth forecasts, the European Commission also revised upwards inflation projections for 2023 and 2024.

The EU Commission expects an annual inflation rate of 5.8% in 2023 and 2.8% in 2024 and for core inflation to average 6.1% in 2023 before softening to 3.2% in 2024.

More bullish growth forecasts and the upward revisions to core inflation leave the ECB under pressure to bring inflation to target.

Geopolitics also tested buyer appetite, with the Turkey elections failing to produce an outright winner.

However, market optimism toward raising the US debt ceiling provided support. US Treasury Secretary Janet Yellen and US President Joe Biden delivered positive updates over the weekend. President Biden and House Speaker Kevin McCarthy will meet today, with both sides of the aisle mindful of June 1 payment obligations.

On Monday, the NASDAQ Composite Index rose by 0.65%, with the S&P 500 and the Dow seeing gains of 0.30% and 0.14%, respectively.

Euro Area and US Economic Indicators Sent Bearish Signals

It was a busy Monday session, with German wholesale inflation and Eurozone industrial production numbers providing direction. German wholesale deflation and a larger-than-expected fall in Eurozone industrial production weighed.

German wholesale prices fell by 0.4% in April versus a forecasted 1.0% increase, with wholesale prices falling by 0.5% year-over-year. Economists forecast a 0.9% increase. The deflationary numbers follow producer price index numbers from China that reflected subdued demand.

Euro area industrial production fell by 4.1% in March versus a forecasted 2.5%, also testing buyer appetite. In February, industrial production increased by 1.5%.

US economic indicators also disappointed, with the NY Empire State Manufacturing Index tumbling from +10.8 to -31.8. Economists forecast a more modest decline to -3.75.

The Market Movers

It was another mixed day for the auto sector. Mercedes-Benz Group and BMW saw gains of 0.21% and 0.67%, respectively. However, Volkswagen and Porsche fell by 0.42% and 0.34%, respectively, with Continental ending the day with a 0.06% loss.

It was a bullish session for the banks. Commerzbank and Deutsche Bank saw gains of 0.75% and 1.10%, respectively.

The Day Ahead for the DAX

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

German and Eurozone ZEW Economic Sentiment and Eurozone GDP numbers for Q1 will move the dial.

The ECB expects the euro area to avoid a recession in 2023. However, German GDP numbers raised question marks over the more optimistic outlook. Economists forecast the Eurozone economy to expand by 0.1% in Q1 versus 0.3% in Q4.

Other stats include euro area trade and employment numbers and finalized inflation figures from Italy. The stats will likely play second fiddle to the GDP and economic sentiment numbers.

However, investors should also track ECB commentary. Luis de Guindos, Anneli Tuominen, and ECB President Christine Lagarde are on the calendar to speak today.

Looking beyond the euro area, economic indicators from China set the tone, with the US debt ceiling a focal point. Over the weekend, President Joe Biden announced he would enter talks with policyholders before departing for the G7 Summit on Wednesday.

In China, industrial production increased by 5.6% year-over-year in April versus a forecasted 10.9%. Industrial production rose by 3.9% in March. Retail sales surged by 18.4% year-over-year versus 10.6% in March. Economists forecast a 21% increase.

While falling short of forecasts, industrial production increased at the most marked pace since September 2022, when production increased by 6.3%.

Looking ahead to the US session, it is a busy day on the US economic calendar. US retail sales and industrial production numbers will draw interest.

Economists forecast retail sales to increase by 0.7% in April. Retail sales have fallen in four of the last five months.

However, investors should also consider FOMC member commentary, with Bostic, Barr, and Williams delivering speeches today.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,924 pivot to target the First Major Resistance Level (R1) at 15,975 and the Monday high of 15,982. A return to 15,950 would send a bullish signal. However, the DAX would need economic indicators, central bank chatter, and US debt ceiling talks to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,032. The Third Major Resistance Level (R3) sits at 16,140.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,867 in play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-15,800. The Second Major Support Level (S2) at 15,816 should limit the downside. The Third Major Support Level (S3) sits at 15,708.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,839). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 (15,867) and the 50-day EMA (15,839) would support a breakout from R1 (15,975) to give the bulls a run at R2 (16,032). However, a fall through S1 (15,867) would bring the 50-day EMA (15,839) and S2 (15,816) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 5 points, with the NASDAQ mini down by 9.75. The Dow fell by 73.

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