DAX Set for a Mixed Session on Economic Uncertainty and the ECB

It was a mixed start to the week for the DAX, which fell by 0.05% to wrap up the day at 15,961.

Economic indicators from Germany failed to sink the DAX at the open, despite a larger-than-expected fall in industrial production.

However, risk sentiment turned sour in the afternoon session, with investor jitters over US inflation sending the DAX into reverse. Recessionary fears contributed to the pullback as investors considered the March German industrial production and factory order numbers.

Central bank commentary added to the bearish mood. On Monday, the ECB Chief Economist spoke about inflation, saying,

“There’s a lot of disinflation coming this year (but) not quite yet. We’re still (seeing) a lot of momentum in inflation… there’s still momentum in food and core inflation.”

On Monday, the NASDAQ Composite Index and the S&P 500 saw gains of 0.18% and 0.05%, respectively. However, the Dow ended the day with a 0.17% loss.

Recessionary Jitters Weighed Ahead of the US CPI Report

German industrial production fell by 3.4% in March versus a forecasted 1.3% decline. In February, industrial production rose by 1.8%.

According to Destatis,

• The manufacture of motor vehicles and parts tumbled by 6.5% in March, reversing a 6.9% jump in April.
• There were also marked declines in the manufacture of machinery & equipment (-3.4%) and the production in construction (-4.6%).
• Production in industry excluding energy and construction fell by 3.3% in March, with the production of capital goods down by 4.4%.
• There were also declines in the production of intermediate goods (-3.5%) and consumer goods (-0.1%).
• However, energy production increased by 0.8%.
• Production in Q1 2023 increased by 2.5% quarter-on-quarter.
• The impact of the Ukraine War on energy prices and energy-intensive industrial sectors remained evident. In March, production fell by 3.3% and was down by 12.9% compared with March 2022.

The outlook for industrial production looks weak, with a tumble in factory orders in March fueling recessionary talk.

It was a quiet US economic calendar, however. There were no US economic indicators to influence.

The Market Movers

It was a mixed day for the auto sector. Continental and Volkswagen saw losses of 0.66% and 0.03%, respectively, with Mercedes-Benz Group ending the day flat. However, BMW and Porsche bucked the trend, rising by 1.28% and 1.26%, respectively.

It was a bullish session for the banks. Commerzbank and Deutsche Bank saw gains of 1.50% and 0.09%, respectively.

The Day Ahead for the DAX

There are no euro area economic indicators for investors to consider.

The lack of economic indicators will leave the DAX in the hands of market risk sentiment and central bank chatter. Recessionary fears have resurfaced following a tumble in German factory orders and a larger-than-expected fall in German industrial production.

Trade data from China set the tone this morning.

China’s dollar trade surplus widened from $88.19 billion to $90.21 billion in April versus a forecasted $71.60 billion. Significantly, imports tumbled 7.9% year-over-year versus a 1.4% fall in March. Exports rose by 8.5% versus 14.8% in March. Economists forecast imports to decline by 5.0% and exports to increase by 8.0%.

However, while better-than-expected export numbers were bullish, the larger-than-forecast imports decline raised demand concerns.

While the trade data from China influenced market risk sentiment, investors should monitor ECB member commentary. ECB Chief Economist Philip Lane is on the calendar to speak today. Comments relating to the euro area economic outlook would move the dial as recessionary jitters resurface.

German corporate earnings will also be in focus. Daimler Trucks will release earnings results today.

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to consider. A lack of stats will leave Fed chatter and market risk sentiment to influence ahead of the US CPI Report tomorrow.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,961 pivot to target the First Major Resistance Level (R1) at 15,988 and the Monday high of 15,996. A return to 15,950 would send a bullish signal. However, the DAX would need central bank chatter to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,023. The Third Major Resistance Level (R3) sits at 16,085.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,926 in play. However, barring an ECB-fueled sell-off, the DAX should avoid sub-15,850. The Second Major Support Level (S2) at 15,899 should limit the downside. The Third Major Support Level (S3) sits at 15,837.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,787). The 50-day EMA pulled 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 (15,787) would support a breakout from R1 (15,988) to give the bulls a run at R2 (16,023). However, an ECB-fueled sell-off would deliver a fall through S1 (15,926) to bring S2 (15,899) into view. A fall through S3 (15,837) and the 50-day EMA (15,787) would signal a near-term bullish trend reversal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 18 points, while the NASDAQ mini fell by 10.50. The Dow was down 21.

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