DAX Index: German Retail Sales and Inflation in Focus Pre Fed

Highlights

• The DAX gained 0.18% on Tuesday, ending the session at 16,977.
• On Wednesday, German inflation, labor market, and retail sales figures are in focus.
• Later in the session, US economic indicators and corporate earnings need consideration.

Overview of the DAX Performance on Tuesday

The DAX gained 0.18% on Tuesday. Reversing a 0.12% loss from Monday, the DAX ended the session at 16,977. Significantly, on Tuesday, the DAX revisited 17,000 for the first time since December 14, 2023.

Euro Area GDP Numbers and the ECB

On Tuesday, GDP numbers for Germany and the Eurozone garnered investor interest. The German economy contracted by 0.3% quarter-on-quarter in Q4 after stalling in Q3. Significantly, the Eurozone avoided a contraction in Q4 after the economy shrank by 0.1% in Q3. In Q4, the Eurozone economy stagnated.

Better-than-expected Eurozone GDP numbers provided relief.

US Economic Calendar: Consumer Confidence and JOLTs Job Openings

On Tuesday, the US economic calendar and US corporate earnings drove buyer demand for DAX-listed stocks. Consumer confidence and JOLTs Job Openings signaled a robust US economy. The CB Consumer Confidence Index increased from 108.0 to 114.8 in January. In December, job openings unexpectedly rose from 8.925 million to 9.026 million.

However, the US equity markets had a mixed Tuesday session. The Nasdaq Composite Index and the S&P 500 declined by 0.76% and 0.06%, respectively, while the Dow gained 0.35%.

Caution ahead of US tech sector corporate earnings results influenced the equity markets. In after-hours trading, Microsoft (MSFT) and Alphabet Inc. (GOOGL) released earnings results. Moreover, Alphabet Inc. shares slid by 5.72% in after-hours trading. Alphabet missed Google ad revenue forecasts. Microsoft declined by 0.28% in after-hours trading despite beating top and bottom-line forecasts.

The Tuesday Market Movers

Bayer fell by 2.16% as the news of a US court ordering the firm to pay $2.25 billion to a man in Pennsylvania resonated.

Online retailer Zalando SE slid by 2.37% as investors responded to warnings of a Q1 German recession.

However, it was a positive session for auto and bank stocks.

BBVA delivered robust earnings results, driving demand for bank stocks. Commerzbank and Deutsche Bank gained 1.23% and 1.04%, respectively.

General Motors (GM) delivered an upbeat outlook for 2024, fueling buyer appetite for auto stocks. Mercedes Benz Group and Porsche ended the day up 0.61% and 0.64%, respectively. Volkswagen and BMW saw gains of 0.59% and 0.09%, respectively.

German Economy and Corporate Earnings in Focus

On Wednesday, the German economy will be under the spotlight. German retail sales and inflation figures could influence the ECB rate path.

Economists forecast retail sales to increase by 0.7% in December after sliding by 2.5% in November. Significantly, economists expect the German annual inflation rate to soften from 3.7% to 3.0%.

Softer-than-expected inflation numbers could raise bets on an April ECB rate cut and drive demand for DAX-listed stocks.

On the earnings calendar, Santander and Raiffeisen Bank will put bank stocks in focus.

US Calendar: ADP Employment, Labor Costs, and Earnings

ADP employment figures for January will draw investor interest on Wednesday. Economists forecast the ADP to report a 145k increase in employment versus 164k in December. Better-than-expected numbers would support expectations of a soft landing.

However, Q4 Employment Costs also need consideration. Wage growth remains a focal point for the Fed. Hotter-than-expected wage growth numbers could impact the Fed rate path. Economists forecast the Employment Cost – Wages Index to increase by 1.1% quarter-on-quarter in Q4 versus 1.2% in Q3.

Other stats include Chicago PMI numbers for January. However, these will likely play second fiddle to the labor market data.

Beyond the economic calendar, Mastercard (MA) and The Boeing Company (BA) are among the big names releasing earnings results.

While the US economic and earnings calendar will influence, investors will also focus on the Fed interest rate decision. Forward guidance on the timing of interest rate cuts will impact near-term appetite for riskier assets. The interest rate decision, release of the Rate Statement, and Press Conference will be after the European market close.

Short-term Forecast

Near-term trends for the DAX will likely hinge on German economic indicators, the Fed interest rate decision, central bank forward guidance, and corporate earnings. However, softer-than-expected inflation and upbeat earnings could deliver a new all-time high for the DAX.

In the futures, the DAX and the Nasdaq mini were down 14 and 146 points, respectively.

DAX Technical Indicators

Daily Chart

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

A DAX break above the Tuesday high of 17,000 could deliver a new all-time high. On December 14, the DAX struck an all-time high of 17,003.

On Wednesday, the German economy, US stats, central banks, and corporate earnings need consideration.

However, a fall below the 16,900 handle would support a fall toward the 16,750 handle.

The 14-day RSI at 64.88 indicates a DAX move to the ATH of 17,003 before entering overbought territory.

4-Hourly Chart

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

A DAX breakout from the Tuesday high of 17,000 would deliver a new all-time high.

However, a drop below the 16,900 handle would give the bears a run at the 50-day EMA.

The 14-period 4-hour RSI at 64.81 suggests a DAX move to the ATH before entering overbought territory.