DAX Set for a Bearish Open on Weak China PMIs and Debt Vote Jitters

It was a bearish Tuesday session for the DAX. The DAX fell by 0.27%. Following a 0.20% fall from Monday, the DAX ended the day at 15,909. Significantly, the DAX ended the day at sub-16,000 for the fifth consecutive session.

Reports from Monday of Republican lawmakers planning to vote against the US debt ceiling deal tested buyer appetite.

However, marked declines in consumer inflation expectations and business selling price expectations provided support. Nonetheless, the shift in sentiment toward inflation failed to boost consumer and business sentiment in May.

Later in the day, US economic indicators failed to move the dial, despite better-than-expected US consumer confidence numbers. The market focus on debt ceiling deal-related news limited the impact of the numbers on the DAX.

Euro Area Business and Consumer Confidence Failed to Impress

The Eurozone Business and Consumer Survey Indicator fell from 99.0 to 96.5 in May versus a forecasted 99.9.

However, business and consumer sentiment toward inflation provided support. The Consumer Expectations Indicator fell from 15.0 to 12.2, with the Selling Price Expectations Indicator down from 11.6 to 6.6.

Private sector loan figures for April failed to sink the DAX despite tighter credit conditions. Private sector loans increased by 2.5% year-over-year in April versus 2.9% in March. Economists forecast loans to rise by 2.7%.

US economic indicators failed to move the dial as investors turned their attention to Capitol Hill and debt ceiling-deal chatter.

The all-important CB Consumer Confidence Index fell from 103.7 to 102.3 in May versus a forecasted decline to 99.0.

The Market Movers

It was a mixed day for the auto sector. Volkswagen fell by 1.0%, with Continental and Porsche seeing losses of 0.34% and 0.48%, respectively.

While BMW slipped by 0.21%, Mercedes-Benz Group bucked the trend with a 0.06% gain.

It was a bearish session for the banks. Commerzbank and Deutsche Bank ended the day down 1.27% and 0.45%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar.

The French economy is in focus early in the European session. Consumer spending, Q1 GDP, and prelim inflation numbers for May will move the dial. We expect the GDP and inflation numbers to have more impact.

Weaker-than-expected growth in Q1 and a pickup in inflationary pressure would question how far the ECB is willing to tighten monetary policy to tame inflation.

German unemployment figures will also draw interest ahead of prelim German inflation figures out later. We expect the inflation numbers to garner more interest. Economists forecast Germany’s annual inflation rate to accelerate from 7.2% to 7.3% in May.

With inflation numbers in focus, investors should monitor central bank commentary. ECB President Christine Lagarde is on the calendar to speak today.

Looking ahead to the US session, it is a relatively busy day on the US economic calendar.

JOLTs job openings will be the main report as investors prepare for Friday’s US Jobs Report. While the headline figure will influence, investors should consider quit rates. A pickup in quit rates would signal employee confidence in US labor market conditions.

However, FOMC members will also need consideration. FOMC members Harker and Bowman are on the calendar to speak today.

While the numbers and Fed commentary will influence, investors should monitor US debt ceiling-related news. US lawmakers could vote on the deal later today.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,952 pivot to target the First Major Resistance Level (R1) at 16,015 and the Tuesday high of 16,058. A return to 16,000 would send a bullish signal. However, the DAX would need economic indicators and 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 16,120. The Third Major Resistance Level (R3) sits at 16,288.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,847 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid sub-15,800 and the Second Major Support Level (S2) at 15,784. The Third Major Support Level (S3) sits at 15,616.

Looking at the EMAs and the 4-hourly chart, the EMAs sent mixed signals. The DAX sat below the 50-day EMA (15,956). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A move through the 50-day EMA (15,956) would support a breakout from R1 (16,015) to target R2 (16,120). However, failure to move through the 50-day EMA (15,956) would leave the 100-day EMA (15,861) and S1 (15,847) in view. A move through the 50-day EMA would send a bullish signal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 28 points, with the NASDAQ mini falling by 11 points.

Ahead of the European session, economic data from China set the tone.

NBS Manufacturing and Non-Manufacturing PMI figures for May gave investors a better view of the macroeconomic environment midway through the second quarter.

The NBS Manufacturing PMI declined from 49.2 to 48.8, with the Non-Manufacturing PMI falling from 56.4 to 54.5. Economists forecast the NBS Manufacturing PMI to rise from 49.2 to 49.4 and the Non-Manufacturing PMI to fall from 56.4 to 55.0.

The NBS numbers are a precursor to the Caixin Manufacturing PMI numbers that will have more impact on riskier assets.

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