DAX Set for a Bullish Open on China Stats and Debt Ceiling Vote

It was a bearish Wednesday session for the DAX. The DAX fell by 1.54%. Following a 0.27% decline on Tuesday, the DAX ended the day at 15,664. Significantly, the DAX ended the day at sub-16,000 for the sixth consecutive session.

Economic indicators from China set the tone of the Wednesday session.

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.

However, economic indicators from the euro area and the US also moved the dial throughout the session.

Beyond the economic calendar, US debt ceiling-related news continued to influence. Market angst toward a Republican-majority House of Representatives vote weighed.

German Unemployment and Inflation Delivered Support

The German economy was in the spotlight on Wednesday, with unemployment and prelim inflation numbers in focus. The stats were DAX-friendly.

Germany’s unemployment rate held steady at 5.6%, supported by a modest 9k increase in German unemployment versus a forecasted 14k rise. In April, unemployment increased by 23k.

Significantly, Germany’s annual inflation rate unexpectedly softened from 7.2% to 6.1% versus a forecasted 7.3%. The softer inflation numbers from Germany and other member states should ease pressure on the ECB to deliver more aggressive monetary policy moves to tame inflation.

However, US economic indicators failed to influence as investors focused on Capitol Hill and the debt ceiling vote.

Job openings increased from 9.745 million to 10.103 million in April versus a forecasted 9.775 million. However, the better-than-expected numbers failed to fuel bets on a 25-basis point Fed interest rate hike in June.

The Market Movers

It was a bearish day for the auto sector. Continental and Porsche tumbled by 4.74% and 3.92%, respectively, with BMW falling by 2.17%. Volkswagen and Mercedes-Benz Group saw losses of 1.87% and 2.01%, respectively.

It was also a bearish session for the banks. Commerzbank and Deutsche Bank ended the day down 2.25% and 1.76%, respectively.

The Day Ahead for the DAX

Before the European session, economic data from China set the tone.

China’s all-important Caixin Manufacturing PMI for May gave investors a better view of the macroeconomic environment midway through the second quarter. The all-important Caixin Manufacturing PMI increased from 49.5 to 50.9 in May versus a forecasted 50.3.

News of the US House of Representatives vote on the US debt ceiling deal also needs consideration after a vote in favor of the debt ceiling deal.

However, it is also a busy day on the European economic calendar.

April German retail sales figures kickstart the European session. Following disappointing Q1 GDP numbers, a pickup in consumer spending should provide some comfort. Economists forecast German retail sales to increase by 1.0%. Retail sales fell by 2.4% in March.

However, Spanish and Italian manufacturing PMIs and finalized manufacturing PMIs from France, Germany, and for the Eurozone and prelim euro area inflation numbers will also draw interest. Barring material revisions to the prelim PMI numbers, we expect prelim inflation numbers to have more impact.

Economists forecast the annual inflation rate to hold steady at 7.0% and core inflation to soften from 5.6% to 5.5%. Hotter-than-expected euro area inflation figures would force the ECB to continue raising interest rates to tame inflation.

The ECB will also be in the spotlight, with the ECB Monetary Policy Meeting Accounts and ECB member commentary in focus. ECB President Christine Lagarde and Executive Board member Andrea Enria are on the calendar to speak today.

The US Session

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

ADP nonfarm employment change, initial jobless claims, and the ISM Manufacturing PMI will move the dial. While investors are pricing in a more dovish Fed, solid labor market numbers could refuel bets on a 25-basis point June interest rate hike.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike tumbled from 66.6 to 26.4% on Wednesday as the markets responded to Fed chatter that favored a June pause.

However, FOMC members and US debt ceiling-related news will also need consideration later today.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,722 pivot to target the First Major Resistance Level (R1) at 15,814 and the Wednesday high of 15,872. A return to 15,750 would send a bullish signal. However, the DAX would need economic indicators and debt ceiling news to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 15,965. The Third Major Resistance Level (R3) sits at 16,208.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,571 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid the Second Major Support Level (S2) at 15,479. The Third Major Support Level (S3) sits at 15,236.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat above the 200-day EMA (15,632). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 (15,814) and the 100-day EMA (15,852) would give the bulls a run at the 50-day EMA (15,929) and R2 (15,965). However, a fall through the 200-day EMA (15,632) would bring S1 (15,571) into view. A move through the 50-day EMA would send a bullish signal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 82 points, while the NASDAQ and Dow were down 31 and 41 points, respectively.

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