DAX Index: China, ECB President Lagarde, and US Data in Focus

Highlights

• The DAX declined by 0.07% on Friday, ending the session at 16,555.
• Recessionary fears and easing bets on a Q1 2024 ECB rate cut left the DAX in negative territory.
• On Monday, ECB President Lagarde will be in the spotlight as investors begin considering the ECB monetary policy decision and press conference.

Overview of the DAX Performance on Friday

The DAX declined by 0.07% on Friday. Partially reversing a 0.83% gain from Thursday, the DAX ended the week down 0.89% to 16,555.

German Producer Prices Fail to Drive Bets on an ECB Rate Cut

On Friday, German producer price drew investor attention. Producer prices slid by 1.2% in December after falling by 0.5% in November. Economists forecast producer prices to decline by 0.5%. A downward trend in producer prices signals a weak demand environment. Producers reduce prices in a competitive environment, which can dampen consumer price inflationary pressures.

However, comments at the World Economic Forum were consistent with recent ECB member speeches. ECB members have warned the markets are ahead of the ECB on the timing of rate cuts.

US Consumer Sentiment Signals Robust US Economy

On Friday, US consumer sentiment numbers for January further reduced bets on a March Fed rate cut. The Michigan Consumer Sentiment Index increased from 69.7 to 78.8 in January. Economists forecast a rise to 70.0. Significantly, the consumer sentiment numbers supported investor expectations of a soft landing.

The numbers failed to spook investors, with the US economy performing robustly despite an elevated interest rate environment. 10-year US Treasury yields declined by 0.48% on Friday, ending the session at 4.126%. Yields initially responded to the consumer sentiment numbers, hitting a Friday high of 4.196% before reversing.

The pullback in 10-year Treasury yields drove demand for riskier assets. On Friday, the Nasdaq Composite Index rallied 1.70%. The Dow and the S&P 500 saw gains of 1.05% and 1.23%. Significantly, the US equity markets supported a DAX recovery from session lows.

The Friday Market Movers

Auto stocks were amongst the worst performers on the DAX. Porsche slid by 1.79%. Mercedes-Benz Group and Volkswagen saw losses of 1.22% and 1.15%, respectively. BMW declined by 0.82%.

Concerns about the German economy and ECB forward guidance on interest rates impacted retail-linked stocks. Zalando and Adidas ended the session down 1.00% and 0.17%, respectively.

Bank stocks contributed to the losses. Commerzbank fell by 1.73%, with Deutsche Bank falling by 0.82%. Market sentiment toward merger talks continued to impact Commerzbank’s share price. However, concerns about the Eurozone economy contributed to the losses.

However, tech stocks limited the losses. Infineon Technologies and Siemens Energy AG saw gains of 0.26% and 0.94%, respectively.

China and ECB President Lagarde in Focus

On Monday, ECB President Lagarde will be in the spotlight. The ECB will deliver its first monetary policy of 2024 on Thursday. Comments relating to the economic outlook, inflation, and interest rates need consideration. A shift in guidance vis-à-vis rate cut discussions would support demand for DAX-listed stocks.

However, central bank action in China failed to spook investors. The PBoC left the 1-year and 5-year loan prime rates (LPR) unchanged. Economists forecast the PBoC to leave the 1-year and 5-year LRPs at 3.45% and 4.20%, respectively.

In the Futures markets, the DAX and Nasdaq mini were up 129 and 112 points, respectively.

Robust US Economy vs. March Fed Rate Cut Bets

On Monday, the US CB Leading Index warrants investor attention. Economists forecast the Index to decline by 0.3% in December after falling by 0.5% in November. However, investors must consider the sub-components.

In November, housing and labor market indicators were softer. A continued downward trend in the housing and labor market indicators could support Conference Board forecasts of a short and shallow US economic recession.

There are no Fed speakers to influence investor bets on a March Fed rate cut. The Fed entered the Blackout period on January 21.

Short-Term Forecast

Near-term DAX trends hinge on German private sector PMIs and the ECB press conference. Weaker private sector activity and an ECB committed to keeping interest rates higher for longer could impact DAX-listed stocks. However, corporate earnings could be a distraction amidst the increasing threat of a Eurozone recession.

DAX Technical Indicators

Daily Chart

The DAX sat above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX break above the Friday high of 16,648 would support a move toward the January 15 high of 16,736.

Investors must consider stimulus chatter from Beijing, ECB commentary, the US economic calendar, and geopolitical tensions in the Middle East.

However, a fall through the 16,470 support level would give the bears a run at the 50-day EMA.

The 14-day RSI reading of 50.36 suggests a DAX move to 16,800 before entering overbought territory.

4-Hourly Chart

The DAX remained below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price trends.

A DAX break above the 50-day EMA would support a move toward the January 15 high of 16,736.

However, a fall through the 16,470 support level would bring the 16,290 support level into view.

The 47.90 14-4 hour RSI suggests a DAX fall to the 16,290 support level before entering oversold territory.

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