DAX Set for a Bearish Open with Business Sentiment in Focus

Highlights

• It was a bullish Monday for the DAX, gaining 0.08% to end the day at 16,191.
• Gloomy private sector PMI numbers for July failed to sink the DAX, with US stats and the US equity markets delivering late support.
• However, it is a quieter Tuesday session, with German business sentiment in focus ahead of the US session.

It was a bullish start to the week for the DAX, which gained by 0.08%. Following a 0.59% gain on Friday, the DAX ended the day at 16,191. Significantly, the DAX avoided sub-16,000 for a fifth consecutive day.

Economic indicators from the euro area weighed on investor sentiment, with flash PMIs sounding the recession bells. However, US PMI numbers were more upbeat, easing immediate fears of a Fed-fueled US economic recession.

Late in the European session, the US equity markets provided much-needed support. The NASDAQ Composite Index gained by 0.19%, with the Dow and S&P 500 rising by 0.52% and 0.40%, respectively.

The gains came from market bets on an end to the Fed monetary policy tightening cycle and upbeat earnings from Alphabet Inc. (GOOGL), Meta Platforms Inc. (META), and Microsoft (MSFT). Economists forecast the Fed to lift rates by 25-basis points on Wednesday.

Private Sector PMIs Signal Recession

Flash private sector PMIs for France, Germany, and the euro area were in focus on Monday. A gloomy set of numbers raised the market expectations of a euro area economic recession.

The German manufacturing PMI fell from 40.6 to 38.8, with the services PMI down from 54.1 to 52.0. Numbers from France were also bearish, with the manufacturing PMI down from 46.0 to 44.5. The services PMI slipped from 48.0 to 47.4.

The Eurozone manufacturing PMI fell from 43.4 to 42.7, with the services PMI down from 52.0 to 51.1. As a result of the weaker numbers, the Eurozone composite PMI declined from 49.9 to 48.9, raising the threat of a euro area recession.

US economic indicators were more upbeat despite slower service sector growth. The all-important US Services PMI fell from 54.4 to 52.4, while the manufacturing PMI increased from 46.3 to 49.0.

The Market Movers

It was a bullish session for the auto sector. Continental AG led the way gaining 1.72%, with BMW and Porsche ending the day up 0.95% and 0.85%, respectively. Mercedes-Benz Group and Volkswagen saw more modest gains of 0.28% and 0.54%, respectively.

It was also a bullish session for the banks. Commerzbank and Deutsche Bank rose by 0.40% and 0.75%, respectively.

Continental was among the front runners, with Adidas also making gains on Yeezy shoe orders.

The Day Ahead for the DAX

It is a relatively quiet day ahead for the DAX, with the German Ifo Business Climate Index in focus this morning. A sharper-than-expected fall in the German Ifo Business Climate Index would test buyer appetite. Economists forecast the headline Index to fall from 88.5 to 88.0.

The latest PMI numbers painted a grim picture of the German economy, suggesting a more marked decline in business sentiment.

Later in the session, US consumer confidence numbers for July will move the dial. Economists forecast the CB Consumer Confidence Index to rise from 109.7 to 111.5. Expectations of the Fed hitting the brakes after Wednesday and tight labor market conditions should support a pickup in confidence.

However, beyond the economic calendar, corporate earnings will also need consideration.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (16,047) and 200-day (15,894) EMAs, signaling bullish momentum over the near and longer term.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, sending bullish price signals and supporting a run at the 16,310 – 16,360 resistance band.

A DAX move through the July high of 16,241 would bring the 16,310 – 16,360 resistance band into play. However, the economic indicators and corporate earnings must be DAX-friendly to support a bullish session.

A fall through the upper level of the 16,080 – 16,000 support band would bring the 50-day EMA (16,047) and sub-16,000 into view.

The 14-4H RSI sits at 62.41, sending bullish signals. Significantly, the RSI aligns with the EMAs, supporting a breakout from the July high (16,241) to target the 16,310 – 16,360 resistance band.

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