DAX Set for a Bullish Open on Hot China GDP Numbers

It was a bearish start to the week for the DAX. The DAX fell by 0.11% to end the day at 15,790. Notably, the Monday loss ended a five-day winning streak.

Economic indicators from the euro area and the US failed to deliver support. Investor caution weighed on the DAX, with US corporate earnings set to give investors a litmus test of the US economy this week.

Market caution ahead of GDP numbers from China this morning tested buyer appetite, with more hawkish sentiment toward Fed monetary policy also a headwind.

According to the FedWatchTool, there is a 91.0% probability of a 25-basis point Fed interest rate hike in 15 days. One month ago, there was a 20.7% chance of a 25-basis point May interest rate hike. Significantly, there are also increasing bets of a 25-basis point hike in June, up from 0% in March to 18.4% this morning.

Hopes of an H2 2023 interest rate cut are also subsiding. There is a 2.1% chance of a 25-basis point interest rate cut in July, down from 15.4% one month ago.

Despite the more hawkish policy bets, the NASDAQ Composite Index increased by 0.28% on Monday, with the S&P 500 and Dow seeing gains of 0.33% and 0.30%, respectively.

Economic Indicators and Fed Fear Leave the DAX in Limbo

Finalized Italian inflation figures were in focus early in the European session. In March, consumer prices in Italy fell by 0.4%, according to finalized figures, versus a prelim 0.3% decline. Consumer prices rose by 0.2% in February.

According to Istat,

• The annual inflation rate softened from 9.1% to 7.6% versus a flash estimate of 7.7%.
• Prices of non-regulated energy goods (from +40.8% to 18.9%) and regulated energy (from -16.4% to -20.3%) delivered a softer annual inflation rate.
• However, prices for unprocessed food rose accelerated from +8.7% to +9.1%, with prices for tobacco up from +1.8% to +2.5%.
• Housing-related services also partially offset the fall in energy prices, rising from +3.3% to +3.5%.
• The core inflation (excl. energy and unprocessed foods) was +6.3%, unchanged from February.

The softer headline inflation figures supported a more dovish ECB monetary policy stance. However, core inflation remained a bugbear.

US Economic indicators delivered late support, with the NY Empire State Manufacturing Index jumping from -24.6 to +10.8 in April.

The Market Movers

It was a mixed Monday for the auto sector. Continental gained 1.05% to buck the broader market trend.

Porsche and Mercedes-Benz Group ended the day with losses of 1.72% and 1.65%, respectively. BMW and Volkswagen saw losses of 0.46% and 0.63%, respectively.

It was a bearish session for the banks. Commerzbank and Deutsche Bank fell by 3.84% and 2.22%, respectively.

The Day Ahead for the DAX

It is a busy day ahead on the economic calendar. ZEW Economic Sentiment figures for Germany and the Eurozone and euro area trade data will be in focus.

The stats are DAX positive, with economists forecasting the euro area trade deficit to narrow from €30.6 billion to €11.9 billion. While a narrowing is DAX positive, the devil will be in the details. Trade terms with China and the US will likely be focal points.

However, we expect the ZEW economic sentiment figures to have more influence. Economists forecast the German ZEW Economic Sentiment Index to rise from 13.0 to 15.3 and the Eurozone ZEW Economic Sentiment Index to climb from 10 to 13.

With the economic calendar on the busy side, investors should monitor ECB commentary today. However, no ECB Executive Board members are on the calendar to deliver speeches today, leaving chatter with the media to influence.

Looking toward the US economic calendar, housing sector data for March will draw interest, with housing starts and building permits due out. However, the US housing market appears to be off the Fed’s radar vis-à-vis monetary policy decisions, which should limit the influence on riskier assets.

Fed Chatter and US corporate earnings will likely move the dial. Big names on the US corporate earnings calendar include Johnson & Johnson (JNJ), Netflix (NFLX), Bank of America (BAC), and Goldman Sachs (GS).

Earlier this morning, better-than-expected economic data from China delivered a pre-European session boost.

Technical Indicators

The DAX has to move through the 15,819 pivot to target the First Major Resistance Level (R1) at 15,873 and the Monday high of 15,903. A return to 15,800 would send a bullish signal. However, the DAX would need euro area stats and central bank commentary to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,958 and resistance at $16,000. The Third Major Resistance Level (R3) sits at 16,097.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,734 in play. However, barring a flight to safety, the DAX should avoid sub-$15,700 and the Second Major Support Level (S2) at 15,680. The Third Major Support Level (S3) sits at 15,541.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,546). 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 Major Support Levels and the 50-day EMA (15,546) would support a breakout from R1 (15,873) to give the bulls a run at R2 (15,958) and 16,000. However, a risk-off event would deliver a fall through S1 (15,734) to bring S2 (15,680) into view. A fall through the 50-day (15,546) would signal a near-term bullish trend reversal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 27 points, while the NASDAQ mini fell by 17.75. The Dow mini was up by 1.

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