DAX Set for a Bullish Open ahead of Euro Area Inflation Figures

It was another choppy session on Friday for the DAX, which found late support to end the day up 0.77% to 15,922. Significantly, the DAX struck a new 2023 high in the final session of April.

A slew of economic indicators from the euro area and the US and corporate earnings provided direction on Friday.

Disappointing GDP numbers from the euro area weighed on investor sentiment, with banks also under pressure on renewed First Republic Bank (FRC) woes.

On Friday, the NASDAQ Composite Index rose by 0.69%, with the Dow Jones and S&P 500 seeing gains of 0.80% and 0.83%, respectively.

Investors Brush Aside Weak GDP Numbers

On Friday, GDP and inflation figures for member states and Eurozone GDP numbers weighed on the DAX.

The German economy contracted by 0.1% in Q1, while the French economy expanded by 0.2%. Economists forecast growth of 0.3% and 0.2%, respectively.

In response to the softer numbers from Germany, the Eurozone economy expanded by 0.1% in Q1 versus a forecasted 0.2%.

Inflation numbers provided little support, with Germany’s annual inflation rate softening from 7.4% to 7.2%.

Economic indicators from the US also delivered bearish signals. The Core PCE Price Index rose by 4.6% in March versus 4.7% in February, while personal spending stalled. While the personal spending figures fueled recessionary fears, the inflation figures cemented a 25-basis point Fed interest rate hike for Wednesday.

While the stats were bearish, corporate earnings delivered a bullish session.

Mercedes-Benz Group beat forecasts despite a fall in year-on-year earnings. A bullish outlook for car and van sales supported the broader auto sector.

However, on Monday, US economic indicators fueled bets of a more hawkish Fed.

In April, the ISM Manufacturing PMI rose from 46.3 to 47.1. The key takeaways from the ISM survey included sharp increases in the employment and prices sub-components. The ISM Manufacturing Employment Index jumped from 46.9 to 50.2, with the Prices Index up from 49.2 to 53.2.

According to the CME FedWatch Tool, the probability of a 25-basis point May interest rate hike rose from 83.9% to 93.2% in 24 hours. Significantly, the chances of a 25-basis point June interest rate hike increased from 23.9% to 27.7%.

The Market Movers

It was a bullish Friday for the auto sector. Continental led the way, rising by 2.22%, with Porsche and Volkswagen seeing gains of 1.18% and 1.38%, respectively. Mercedes-Benz Group and BMW ended the day up 0.74% and 0.79%, respectively.

However, it was a mixed session for the banks. Commerzbank slid by 3.96%, while Deutsche Bank rose by 1.52% as investors responded further to Thursday’s earnings.

The Day Ahead for the DAX

Economic indicators from China and the US will set the tone. The NBS Manufacturing PMI fell from 51.9 to 49.2, with the Non-Manufacturing PMI declining from 58.2 to 56.4. The contraction in the manufacturing sector was significant, with the post-COVID recovery running out of steam.

Looking toward the European session, it is a busy day ahead on the euro area economic calendar.

German retail sales will be in focus ahead of manufacturing PMI numbers for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone.

However, euro area inflation figures will likely have more influence, with economists forecasting the core annual inflation rate to hold steady at 5.7%. Sticky core inflation could force the ECB to deliver a 50-basis point interest rate hike on Thursday.

With investors focused on inflation, ECB member chatter will move the dial. ECB Executive Board Member Andrea Enria is on the calendar to speak today.

News of JPMorgan Chase (JPM) acquiring First Republic Bank (FRC) assets should support the banking sector, though concerns over US banks will linger.

Looking ahead to the US session, JOLTs Job Openings and US factory orders will draw interest. With the labor market a key consideration for the Fed, we expected the JOLTs Job Openings to garner more interest.

While weak numbers could ease bets on a June rate hike, deteriorating labor market conditions would fuel recessionary jitters.

Away from the economic calendar, US corporate earnings will also influence market risk sentiment. Big names on the US earnings calendar include Pfizer Inc. (PFE), Starbucks Corp. (SBUX), and Ford Motor Co (F).

DAX Technical Indicators

Resistance & Support Levels

The DAX has to avoid the 15,844 pivot to target the First Major Resistance Level (R1) at 16,000. A move through the Friday high of 15,922 would send a bullish signal. However, the DAX would need economic indicators, corporate earnings, and central bank commentary to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,078. The Third Major Resistance Level (R3) sits at 16,312.

A fall through the pivot would bring the First Major Support Level (S1) at 15,766 into play. However, barring a flight to safety, the DAX should avoid sub-15,700 and the Second Major Support Level (S2) at 15,610. The Third Major Support Level (S3) sits at 15,376.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,734). 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 (15,766) and the 50-day EMA (15,734) would support a breakout from R1 (16,000) to give the bulls a run at R2 (16,078) and 16,100. However, a risk-off event would deliver a fall through S1 (15,766) and the 50-day EMA (15,734) to bring S2 (15,610) into view. A fall through the 50-day (15,734) would send a bearish signal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was up 32 points, while the NASDAQ mini was down by 2. The Dow mini fell by 4.

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