DAX Index: German Consumer Confidence, US Inflation, and Earnings in Focus

Highlights

• The DAX gained 0.10% on Thursday, ending the session at 16,907.
• On Friday, German consumer sentiment and corporate earnings will draw investor interest.
• Later in the session, the US economic and earnings calendars also warrant investor attention.

Overview of the DAX Performance on Thursday

The DAX gained 0.10% on Thursday. Following a 1.58% rally on Wednesday, the DAX ended the session at 16,907.

German Business Sentiment and the ECB Press Conference

On Thursday, German business sentiment unexpectedly dipped in January. The IFO Business Climate Index fell from 86.3 to 85.2. Economists forecast an increase to 86.7.

The weaker-than-expected and caution before the ECB interest rate decision and press conference pressured the DAX.

Later in the session, the ECB left interest rates at 4.50%, aligned with market expectations. ECB President Lagarde poured cold water over market bets on a Q1 ECB rate cut. The ECB President reinforced recent comments that the markets are ahead of the ECB on the timing of rate cuts. However, Lagarde noted some forward indicators were signaling an improving macroeconomic environment.

US GDP and Jobless Claims Supported Expectations of a Soft Landing

On Thursday, US Q4 GDP numbers contributed to late gains for the DAX. The US economy expanded by 3.3% quarter-on-quarter in Q4 after growing by 4.9% in the previous quarter. Economists forecast growth of 2.0%.

Significantly, consumer spending contributed despite an elevated interest rate environment. The pickup in consumer spending raised expectations of a US soft landing.

US jobless claims continued to signal tight labor market conditions despite higher claims. Initial jobless claims increased from 189k to 214k in the week ending January 20.

The US equity markets responded to the US economic indicators and bets on a soft landing. On Thursday, the Nasdaq Composite Index rose by 0.18%. The Dow and the S&P 500 ended the day with gains of 0.64% and 0.53%, respectively.

The Thursday Market Movers

Adidas led the way, rallying 5.74% as investors reacted to the news of a favorable pre-earnings call. The earnings call offered relief after Puma warned of the likely impact of the Argentinian Peso devaluation on earnings.

However, auto stocks had a mixed Thursday session. Tesla Inc. (TSLA) tumbled 12.13% as investors responded to the earnings miss, impacting the broader sector.

Mercedes Benz Group and Volkswagen ended the day down 1.61% and 1.00%, respectively. Porsche declined by 0.81%. BMW bucked the trend, gaining 0.15%.

Bank stocks also ended the session in negative territory. Commerzbank slid by 2.27%, with Deutsche Bank falling by 0.69%. Concerns about the effects of ECB monetary policy on the German economy likely contributed to the losses. A prolonged German recession could raise non performing loans (NPL) and narrow net interest margins (NIM).

German Consumer Sentiment and Earnings in Focus

On Friday, the German GfK Consumer Sentiment Index warrants investor attention. An upswing in consumer confidence would support the appetite for consumer-linked stocks.

Economists forecast the Index to increase from -25.1 to -24.5 for February. However, investors must consider sub-components, including wage income expectations, the willingness to buy, and sentiment toward inflation and the economic outlook.

Beyond the economic calendar, corporate earnings also need consideration. Sartorius AG is on the calendar to release earnings results.

US Economic Calendar: Personal Income/Spending, Inflation, and Earnings

US personal income/spending and inflation figures will garner investor attention on Friday. Sticky inflation could reduce bets on a March Fed rate cut further and pressure riskier assets.

Economists forecast the Core PCE Price Index to increase by 3.00% year-over-year in December. The Core PCE Price Index rose by 3.2% in November. However, economists expect personal income and spending to increase by 0.3% and 0.4% month-on-month in December. Upswings in personal income/spending could fuel demand-driven inflation and impact the timing of a Fed interest rate cut.

Beyond the numbers, US corporate earnings could also influence the appetite for riskier assets. American Express Co. (AXP) is on the calendar to release earnings.

Intel Corp. (INTC) was among the big names to release earnings results on Thursday. While beating EPS estimates, Q1 2024 forecasts disappointed, sending the stock price down 10.90% in after-hours trading. The weaker outlook could adversely impact German tech stocks.

Short-term Forecast

Near-term trends for the DAX hinge on the US economic calendar and corporate earnings. Sticky US inflation numbers could wipe out bets on a March Fed rate cut and impact riskier assets.

In the futures, the DAX and the Nasdaq mini were down 26 and 111 points, respectively.

DAX Technical Indicators

Daily Chart

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

A DAX breakout from the Wednesday high of 16,921 would support a move to the all-time high of 17,003.

On Friday, German consumer confidence, the US economic calendar, and corporate earnings warrant investor attention.

However, a drop below the 16,850 handle would support a fall to the 16,750 handle.

The 14-day RSI at 63.28 suggests a DAX move to the 17,000 handle before entering overbought territory.

4-Hourly Chart

The DAX held above the 50-day and 200-day EMAs, confirming the bullish price trends.

A DAX return to the January high of 16,964 would give the bulls a run at the ATH 17,003.

However, a drop below the 16,850 handle would bring the 50-day EMA into play.

The 14-period 4-hour RSI at 66.59 suggests a DAX return to the 17,000 handle before entering overbought territory.