DAX in the Hands of Euro Area Stats and US Corporate Earnings

Highlights

• It was a bullish Thursday for the DAX, gaining 0.74% to end the day at 16,141.
• Continued hope for a stimulus package from Beijing and US economic indicators supported another bullish session.
• Later this morning, German wholesale inflation and Eurozone trade data will draw interest ahead of US consumer sentiment numbers.

It was a bullish Thursday session for the DAX, which gained 0.74%. Following a 1.47% rally on Wednesday, the DAX ended the day at 16,141. Significantly, the DAX extended its winning streak to five sessions.

Economic indicators from the euro area failed to pull the DAX into the red, with the US CPI Report from Wednesday and US producer prices on Thursday easing hawkish Fed bets. The effect of the inflation numbers on sentiment toward Fed interest rate hikes was evident.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 94.2% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 11.1%, down from 13.2% on Wednesday.

The NASDAQ Composite Index responded to the Producer Price Index numbers, gaining 1.58%, with the Dow and the S&P 500 rising by 0.14% and 0.85%, respectively.

US Inflation Indicators Remained the Key Drivers

It was a relatively quiet day on the European economic calendar. Finalized French inflation figures failed to move the dial, with the numbers in line with prelim figures. Despite softer-than-expected numbers, Eurozone industrial production figures had a limited impact on bullish investor sentiment.

In May, Eurozone industrial production increased by 0.2% versus a 1.0% rise in April. Economists forecast a 0.3% rise.

However, US economic indicators were more market-friendly. Initial jobless claims declined from 249k to 237k while the Producer Price Index increased less than expected. The Producer Price Index increased by 0.1% in June versus a forecasted 0.2%. The Index fell by 0.4% in May.

The Market Movers

It was a mixed session for the auto sector. Mercedes-Benz Group and Volkswagen rose by 0.26% and 0.28%, respectively, with Porsche and Continental AG ending the day up 0.15% and 0.12%, respectively. BMW bucked the trend, falling by 0.37%.

It was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day up 2.98% and 1.59%, respectively.

The Day Ahead for the DAX

German wholesale inflation figures will be in focus this morning. The weak demand environment has weighed on output prices, sparking fears of a deeper ECB-fueled economic recession. We expect the EUR/USD to be more sensitive to the report than usual.

Later in the day, Eurozone trade data will also move the dial. While the Fed looks set to end its monetary policy tightening cycle, the ECB looks set to continue beyond the summer. However, US economic indicators have eased fears of a US recession, contrasting with the euro area macroeconomic environment.

ECB commentary will also need consideration. ECB Executive Board Member Luis de Guindos is on the calendar to speak today with investors looking for post-summer forward guidance

It is a relatively busy day on the US economic calendar. US import and export price numbers for June will draw interest ahead of prelim Michigan Consumer Sentiment figures.

With inflation the hot topic of this week, we expect the import and export price index figures to garner more interest than usual. However, the Michigan Consumer Sentiment Report will have more impact. Economists forecast the Michigan Consumer Sentiment Index to increase from 64.4 to 65.5 in July.

Away from the US economic calendar, US corporate earnings will need consideration, with the banking sector in the spotlight. Citigroup (C), JPMorgan (JPM), and Wells Fargo (WFC) will deliver earnings results and forward guidance today.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (15,922) and 200-day (15,838) EMAs, signaling bullish momentum over the near and longer term. Significantly, the 50-day EMA pulled away from the 200-day EMA, sending bullish signals and supporting a hold above the upper level of the 16,000 – 16,080 resistance band.

A DAX hold above the 16,000 – 16,080 resistance band would bring the July high of 16,209 into play. However, central bank chatter, euro area economic indicators, and US corporate earnings should support a bullish session.

A fall through the upper level of the 16,000 – 16,080 resistance band would bring sub-16,000 and the 50-day EMA (15,922) into view.

The 14-4H RSI sits at 68.18, sending bullish signals and supporting a run at the 16,209 July high.

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