DAX to Face a Choppy Session with GDP and Debt Talks in Focus
It was a bearish Wednesday for the DAX. The DAX slid by 1.92%. Following a 0.44% loss on Tuesday, the DAX ended the day at 15,842. Notably, the DAX ended the session at sub-16,000 for the first time in five sessions.
Economic indicators from Germany weighed early in the European session, with business sentiment waning in May.
However, investor jitters over the US debt ceiling impasse did the damage, with the DAX on the slide from the European opening bell.
There were no US economic indicators to distract investors early in the US session. The lack of stats left investors to track US debt ceiling-related news and consider the FOMC meeting minutes due after the closing bell.
On Wednesday, the Dow and the S&P 500 saw losses of 0.77% and 0.73%, respectively, with the NASDAQ Composite Index falling by 0.61%.
German Business Sentiment Wanes in May
The German Ifo Business Climate Index fell from 93.4 to 91.7 in May versus forecasts of a decline to 94.7. Notably, the Current Assessment Index slipped from 95.1 to 94.8, with the Business Expectations Index sliding from 91.7 to 88.6. Economists forecast declines to 94.7 and 91.9, respectively.
According to the May survey,
- Business sentiment across the manufacturing sector deteriorated, with expectations falling at the most marked pace since March 2022, after the start of the Ukraine war.
- In contrast, the services sector was satisfied with its current conditions but more pessimistic about the months ahead.
There were no US economic indicators for investors to respond to.
The Market Movers
It was a bearish day for the auto sector. Continental slid by 3.51% to lead the way down, with Mercedes-Benz Group and Porsche seeing losses of 1.88% and 2.31%, respectively. BMW and Volkswagen also struggled, falling by 1.80% and 1.52%, respectively.
It was also a bearish session for the banks. Commerzbank and Deutsche Bank ended the day with losses of 2.77% and 2.29%, respectively.
The Day Ahead for the DAX
It is a relatively busy day ahead for the DAX. The German economy is back in the spotlight, with GDP and consumer sentiment figures in focus.
After disappointing manufacturing PMI numbers on Tuesday, revisions to Q1 GDP numbers would provide direction. The European Commission upwardly revised its growth forecasts for 2023. Downward revisions to the first estimate numbers would question the more optimistic outlook for the euro area.
While the GDP numbers will influence, investors should also consider the German GfK Consumer Climate Index. Weaker consumer sentiment would suggest a further slowdown in service sector activity, which has been the key to the post-COVID euro area economic recovery.
However, investors should track ECB member commentary throughout the day. ECB Executive Board member Luis de Guindos is on the calendar to speak today.
Looking ahead to the US session, it is a busier day on the US economic calendar. US jobless claims, second estimate GDP numbers for Q1, and pending home sales figures for April will be in focus.
We expect the jobless claims and GDP numbers to have more impact. An unexpected fall in initial jobless claims and an upward revision to GDP estimates would fuel bets on a June rate hike.
However, the FOMC chatter and US debt ceiling-related news also need consideration.
FOMC Meeting Minutes Were Neutral
The FOMC meeting minutes after the European closing bell on Wednesday are unlikely to influence. The minutes gave no surprises to distract investors from the debt ceiling crisis. There were no firm indications of what investors should expect in June. However, FOMC members raised concerns about the debt ceiling.
According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June stood at 36.4%, up from 28.1% on Tuesday. The FOMC meeting minutes did not write off a June interest rate hike, with concerns over inflation raising bets on a June move.
DAX Technical Indicators
Resistance & Support Levels
| R1 | 15,969 | S1 | 15,759 |
| R2 | 16,096 | S2 | 15,676 |
| R3 | 16,306 | S3 | 15,466 |
The DAX has to move through the 15,886 pivot to target the First Major Resistance Level (R1) at 15,969. A return to 15,950 would send a bullish signal. However, the DAX would need the German and US GDP numbers and 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 16,096. The Third Major Resistance Level (R3) sits at 16,306.
Failure to move through the pivot would leave the First Major Support Level (S1) at 15,759 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid sub-15,750 and the Second Major Support Level (S2) at 15,676. The Third Major Support Level (S3) sits at 15,676.
Looking at the EMAs and the 4-hourly chart, the EMAs send more bearish signals. The DAX sits below the 100-day EMA (15,845). 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 the 100-day EMA (15,845) would support a run at R1 (15,969) and the 50-day EMA (15,977). However, failure to move through the 100-day EMA (15,845) would leave S1 (15,759) in 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 10 points, with the NASDAQ mini up 188.5. However, Dow was down by 77.
For a look at the economic events, check out our economic calendar.
