DAX Set for a Choppy Session with Inflation and the Debt Ceiling in Focus

It was a bearish Tuesday for the DAX. Falling by 0.12%, the DAX ended the session at 15,914.

Economic indicators from China set the tone, with weaker-than-expected industrial production, retail sales, and fixed asset investments weighing on riskier assets.

However, a lack of progress toward raising the US debt ceiling contributed to the bearish mood.

European and US economic indicators failed to steady the ship, with German and Eurozone economic sentiment weakening and US retail sales falling short of forecasts. The DAX and the broader European markets closed before the Biden-Republican meeting to progress debt ceiling talks.

On Tuesday, the NASDAQ Composite Index fell by 0.18%, with the S&P 500 and the Dow seeing losses of 1.01% and 0.64%, respectively.

German Economic Sentiment and US Retail Sales Disappoint

It was a busy day on the European economic calendar. German and Eurozone ZEW economic sentiment numbers and prelim Eurozone GDP numbers were in focus.

Economic sentiment figures for Germany and the Eurozone disappointed despite the ECB’s improved sentiment toward the economic outlook.

The German ZEW Economic Sentiment Index fell from 4.1 to -10.7 in May versus a forecasted decline to -5.3. Sentiment toward the Eurozone economy followed a similar path, with the Eurozone ZEW Economic Sentiment Index sliding from +6.4 to -9.4. Economists forecast a decline to -1.0.

However, trade data and prelim GDP numbers for the Eurozone provided a cushion. In March, the Eurozone trade surplus widened from €3.7 billion to €25.6 billion. The Eurozone economy crawled through Q1, expanding by 0.1% versus 0.3% in Q4. Avoiding a contraction was key.

Later in the session, US retail sales failed to fuel a late recovery. Retail sales increased by 0.4% in April versus a forecasted 0.8% rise. In March, retail sales fell by 0.7%.

Other stats included US industrial production, finalized Italian inflation, and Q1 employment figures for the euro area. However, the stats failed to move the dial.

Ahead of the European opening bell, economic data from China set the mood.

In China, industrial production increased by 5.6% year-over-year in April versus a forecasted 10.9%. Industrial production rose by 3.9% in March. Retail sales surged by 18.4% year-over-year versus 10.6% in March. Economists forecast a 21% increase.

While falling short of forecasts, industrial production increased at the most marked pace since September 2022, when production increased by 6.3%.

The Market Movers

It was another mixed day for the auto sector. Volkswagen and Porsche slid by 1.80% and 1.65%, respectively. Mercedes-Benz Group and BMW also saw red, falling by 0.88% and 0.51%, respectively. However, Continental bucked the trend, rising by 0.09%.

It was a bearish session for the banks. Commerzbank and Deutsche Bank saw losses of 2.11% and 1.79%, respectively.

The Day Ahead for the DAX

French, German, and Italian car registration numbers will draw interest this morning. While the numbers may not influence the ECB, the stats will give investors a litmus test of the euro area macroeconomic environment.

Later this morning, Italian trade data will also influence ahead of prelim Eurozone inflation numbers for April. While the headline inflation figure will garner interest, the ECB remains focused on core inflation.

Economists forecast the core annual inflation rate to soften from 5.7% to 5.6%.

Investors should also track ECB commentary throughout the day. Hotter-than-expected inflation numbers could fuel more hawkish chatter. ECB Executive Board members Frank Elderson, Fabio Panetta, and Luis de Guindos are on the calendar to speak today.

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

The US housing sector will be in the spotlight, with building permits and housing start numbers in focus.

While investors can consider the housing sector a litmus test of the US macroeconomic environment, the Fed’s focus on inflation and labor market conditions should limit the impact of the numbers on the global financial markets.

With the US economic calendar on the light side, investors should track FOMC member chatter with the media. Fed Chair Powell speaks on Friday, and some members may lay the foundations for the Powell speech.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,909 pivot to target the First Major Resistance Level (R1) at 15,957 and the Tuesday high of 15,968. A return to 15,950 would send a bullish signal. However, the DAX would need euro area economic indicators, central bank chatter, and US debt ceiling talks to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,015. The Third Major Resistance Level (R3) sits at 16,121.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,851 in play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-15,800. The Second Major Support Level (S2) at 15,803 should limit the downside. The Third Major Support Level (S3) sits at 15,697.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,847). 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 (15,851) and the 50-day EMA (15,847) would support a breakout from R1 (15,957) to give the bulls a run at R2 (16,015). However, a fall through S1 (15,851) and the 50-day EMA (15,847) would bring S2 (15,803) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 6 points, while the NASDAQ mini was up by 35.25. The Dow gained 51.

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