DAX Index: Eurozone Inflation and the US Jobs Report in Focus

Highlights

• The DAX gained 0.48% on Thursday, ending the session at 16,617.
• On Friday, German retail sales and Eurozone inflation are focal points.
• The US Jobs Report and ISM Services PMI warrant investor attention late in the session.

Overview of the DAX Performance on Thursday

The DAX gained 0.48% on Thursday. Partially reversing a 1.38% slide from Wednesday, the DAX ended the Thursday session at 16,617.

German Services PMI and Inflation

On Thursday, the euro area services sector and inflation were in focus. Better-than-expected German Services PMI numbers failed to ease fears of a euro area recession. The Services PMI fell from 49.6 to 49.3 in December, up from a preliminary 48.4. Notably, the Eurozone Services PMI rose from 48.7 to 48.8, up from a preliminary 48.1.

A pickup in German inflationary pressures delivered ECB monetary policy uncertainty. The annual inflation rate accelerated from 3.2% to 3.7%. Economists forecast an inflation rate of 3.7%.

Better-than-expected service PMI numbers from China contributed to a positive start to the Thursday session.

US Labor Market Data Highlight Robust Economy

On Thursday, US labor market indicators reflected tight labor market conditions. The ADP reported a larger-than-expected increase in employment. Initial jobless claims fell from 220k to 202k in the week ending December 30. The better-than-expected numbers marginally reduced bets on a Q1 2024 Fed rate cut.

Service sector activity also improved in December, easing fears of a hard landing. The S&P Global Services PMI increased from 50.8 to 51.4 in December, up from a preliminary 51.3.

According to the CME FedWatch Tool, the probability of a 25-basis point March rate cut fell from 64.7% to 62.7%.

On Thursday, the Nasdaq Composite Index and S&P 500 declined by 0.56% and 0.34%, respectively. The Dow gained 0.03%.

The Thursday Market Movers

Retail-orientated stocks were a drag, with Zalando SE and Adidas seeing losses of 4.13% and 3.01%, respectively. JD Sports Fashion (JD.LON) lowered its profit forecast, sending Adidas into negative territory. Recessionary fears contributed to the heavy losses.

The pullback in tech stocks continued, with Infineon Technologies ending the day down 2.05%.

However, the financial and auto sectors contributed to the session gains. Commerzbank and Deutsche Bank ended the day up 3.99% and 2.20%, respectively.

BMW and Volkswagen gained 1.50% and 1.32%, respectively. Mercedes-Benz Group and Porsche ended the day up 0.19% and 0.20%, respectively.

German Retail Sales and Eurozone Inflation in Focus

On Friday, German retail sales figures for November will garner investor interest. A larger-than-expected fall in retail sales would support bets on a Euro area recession and impact retail-orientated stocks. Economists forecast retail sales to fall by 0.1% after rising by 1.1% in October.

However, Eurozone inflation figures for December could have more impact on market risk appetite. Economists forecast the annual inflation rate to accelerate from 2.4% to 3.0%. However, economists expect core inflation to soften from 3.6% to 3.5%. Hotter-than-expected inflation numbers would support recent ECB warnings of a higher-for-longer rate path.

US Jobs Report and Services Sector in the Spotlight

Later in the Friday session, the all-important US Jobs Report warrants investor attention. An unexpected pickup in wage growth and a steady unemployment rate could test bets on a Q1 Fed rate cut. Economists forecast average hourly earnings to increase by 3.9% year-over-year in December versus 4.0% in November. Significantly, economists expect the unemployment rate to rise from 3.8% to 3.9%.

However, investors must consider service sector data. Steady service sector activity would ease fears of a hard landing. Economists forecast the more influential ISM Services PMI to fall from 52.7 to 52.6 in December.

In the futures, the DAX was down 70 points, while the Nasdaq mini gained 5 points.

Short-Term Forecast

Near-term DAX trends will hinge on Eurozone inflation and the US Jobs Report. Threats of the ECB and FED delaying rate cuts could impact DAX-listed stocks. Recent euro area inflation numbers support a pickup in Eurozone inflation, leaving the US Jobs Report to influence.

DAX Technical Indicators

Daily Chart

The DAX remained well above the 50-day and 200-day EMAs, affirming bullish price signals.

A DAX break above the Wednesday high of 16,784 would support a move toward the December 14 ATH of 17,003.

Eurozone inflation, the US Jobs Report, the ISM US Services PMI, and central bank commentary are in focus.

However, a drop below the 16,470 support level would give the bears a run at the 16,290 support level.

The 14-day RSI reading of 57.41 indicates a DAX move to 17,000 before entering overbought territory.

4-Hourly Chart

The DAX sat at the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A DAX breakout from the 50-day EMA would give the bulls a run at the Wednesday high of 16,784.

However, a break below the 50-day EMA would support a fall through the 16,470 support level.

The 45.07 14-4 hour RSI indicates a DAX fall through the 16,470 support level before entering oversold territory.

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