DAX Set for a Bullish Open Despite US Debt Ceiling Woes
It was a bearish Thursday session for the DAX, which fell by 0.37% to end the day at 15,835.
There were no economic indicators from the euro area to provide direction. However, inflation numbers from China set a bearish mood ahead of the European opening bell.
In April, the annual inflation rate softened from 0.7% to 0.1% versus a forecasted 0.4%. Consumer prices fell by 0.1% in April, following a 0.3% decline in March. Significantly, the producer price index was down 3.6% year-over-year in April versus 2.5% in March. Economists forecast a 3.2% decline.
The wholesale inflation figures signal further weakness in demand.
Later in the session, hawkish ECB chatter overshadowed easing bets of a Fed interest rate hike in June. However, a lack of progress toward raising the US debt ceiling contributed to the bearish mood.
On Thursday, the NASDAQ Composite Index gained 0.18%, while the S&P 500 and Dow saw losses of 0.17% and 0.66%, respectively.
US Economic Indicators Deliver Little Comfort
There were no economic indicators from the euro area to influence, leaving central bank chatter to draw interest ahead of the US session.
On Thursday, ECB Vice President Luis de Guindos referred to inflation and terminal rates. Discussing inflation, the ECB VP said,
“What worries me the most in the underlying inflation trend is the trend in service prices. Momentum in services is rising. There’s demand, and that’s because salary increases are accelerating.”
On terminal rates, de Guindos had this to say,
“Don’t believe anybody who tells you what the terminal rate is going to be. I don’t feel comfortable or uncomfortable, but markets can be wrong about this.”
The US economic calendar had a limited impact on the DAX, with the US debt ceiling in focus. However, the stats capped bets of a 25-basis point Fed interest rate hike in June.
The US wholesale inflation rate softened from 2.7% to 2.3% in April versus a forecasted 2.4%. Core inflation eased from 3.4% to 3.2%. Jobless claim figures also supported a less hawkish Fed, with initial jobless claims up from 242k to 264k. Significantly, initial jobless claims breached 250k for the first time since April 2022.
According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike rose from 5.0% to 7.2% in response to the Thursday stats. However, the chances of a June rate cut remained at 0%.
The Market Movers
It was a mixed day for the auto sector. Continental and BMW saw losses of 1.06% and 0.29%, respectively. However, Volkswagen and Porsche saw gains of 1.46% and 1.99%, respectively, with Mercedes-Benz Group ending the day up 0.16%.
It was also a mixed session for the banks. Commerzbank rose by 0.12%, while Deutsche Bank ended the day with a 1.32% loss.
The Day Ahead for the DAX
It is a relatively quiet day ahead on the European economic calendar. Finalized French and Spanish inflation figures for April will be in focus. Sticky inflation has supported more hawkish ECB chatter in recent sessions. The French inflation figures will likely garner more interest, with revisions to the Harmonized Index of Consumer Prices of greater significance.
However, investors should also track ECB commentary, with inflation, the US debt ceiling, and the banking sector in the spotlight. ECB Executive Board member Luis de Guindos is on the calendar to speak today.
Looking ahead to the US session, it is a relatively busy day on the US economic calendar. Michigan Consumer Sentiment and Consumer Expectation numbers will be in focus.
Following the Fed’s decision to hike interest rates by 25 basis points, consumer sentiment toward the economic outlook, inflation, and the labor market will likely be focal points.
While the Michigan numbers will influence, we expect FOMC member commentary to draw interest following the latest round of inflation numbers. FOMC member Bowman is on the calendar to speak later today.
Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring.
DAX Technical Indicators
Resistance & Support Levels
The DAX has to move through the 15,854 pivot to target the First Major Resistance Level (R1) at 15,952. A return to 15,900 would send a bullish signal. However, the DAX would need central bank chatter and US debt ceiling talks to support a breakout.
In the case of an extended rally, the bulls will likely test resistance at the Thursday high of 15,971 but fall short of the Second Major Resistance Level (R2) at 16,070. The Third Major Resistance Level (R3) sits at 16,286.
Failure to move through the pivot would leave the First Major Support Level (S1) at 15,736 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid sub-15,700 and the Second Major Support Level (S2) at 15,638. The Third Major Support Level (S3) sits at 15,422.
Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,817). 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 the 50-day EMA (15,817) would support a breakout from R1 (15,952) to give the bulls a run at the Thursday high of 15,971 and 16,000. However, a fall through the 50-day EMA (15,817) would bring S1 (15,736) and the 100-day EMA (15,696) into view. A fall through the 50-day EMA would send a bearish signal.
The DAX Futures Sees Green
Looking at the futures markets, DAX was up 29 points, with the NASDAQ mini up by 40.75. The Dow gained 29.
For a look at the economic events, check out our economic calendar.