Dax Index News: ECB Signals and US Data to Dictate DAX Trends Pre-Fed

DAX Slips Amid China Jitters: Can US Retail Sales Ease Fed Fear?

On Monday, December 16, the DAX declined by 0.45%, following Friday’s 0.10% drop to close at 20,314.

Concerns about the economic outlook weighed on market sentiment, driven by weaker-than-expected data from China. Fears of a hawkish Fed rate cut contributed to the losses.

Auto Stocks Slide on Porsche Warning

Auto stocks reversed Friday’s gains amid weak consumption data from China. Mercedes Benz and BMW fell 3.86% and 3.17%, respectively. Porsche slid 2.19% after signaling a potential write-down in its Volkswagen stake.

Healthcare stocks extended their losses from Friday. Sartorius AG and Bayer declined by 1.80% and 1.32%, respectively.

China Retail Sales Underscore Waning Demand

China’s retail sales growth slowed to 3.0% year-on-year in November, down sharply from 4.8% in October. Weaker retail sales aligned with waning consumer confidence, underscoring the need for targeted stimulus measures to boost demand.

Given Germany’s exposure to China, muted consumption trends may weigh on German corporates.

Germany’s Manufacturing Sector Faces Deeper Challenges

Germany’s Manufacturing PMI fell from 43.0 in November to 42.5 in December as US tariffs loom. While the services sector rebounded, rising to 51.0 in December from 49.3, its inflationary impact remains a concern. Input and output prices accelerated, complicating the outlook for ECB monetary policy.

A more hawkish ECB rate path could raise borrowing costs, pressuring corporate profits and stock prices.

German Business Sentiment and the ECB in Focus

Germany’s Ifo Business Climate Index will require consideration on Tuesday, December 17. Economists expect the Index to slip from 85.7 in November to 85.6 in December.

A larger-than-expected fall could signal weaker business investment, potentially affecting the labor market. A looser labor market may dampen consumption and inflationary pressures, supporting multiple ECB rate cuts.

However, inflation remains an ECB focal point, leaving the German economy at risk of further deterioration.

What Do the Experts Think About the German Economy?

Oxford Economics European Macro Specialist Daniel Kral remarked on December’s private sector PMIs, stating,

“Not much to celebrate despite a small pickup in Eurozone December PMIs, driven by better services. No end in manufacturing weakness, reinforcing a dual economy. Both Germany and France remain deep in contraction territory with French political turmoil taking its toll. A weak finish to 2024.”

US Services Sector Signals Robust US Economy

The S&P Global Services PMI increased from 56.1 in November to a 38-month high of 58.5 in December, signaling a robust US economy. Accounting for around 80% of the US GDP, December’s prelim PMI data supported a more hawkish Fe rate path. Service providers increased staffing levels for the first time since July, while input prices rose at the slowest rate in four-and-a-half years.

Despite easing inflation, falling bets on a January Fed rate cut weighed on the DAX late in the session. According to the CME FedWatch Tool, the probability of a 25-basis point January Fed rate cut declined from 18.5% on December 13 to 16.3% on December 16.

US Markets Retreat: Fed in Focus

US equity markets delivered mixed performances on Monday. The Nasdaq Composite rallied 1.24%. Broadcom Inc. (AVGO) jumped by 11.21% after Friday’s 24.43% surge, contributing to the gains. Investors continued reacting to the firm’s better-than-expected revenue projections.

Meanwhile, the S&P 500 advanced by 0.38%, while the Dow extended its losing streak to eight sessions, falling 0.25%.

Higher 10-year US Treasury yields, rising for the sixth session, underscored uncertainty about the Fed’s rate path in Q1 2025. Treasury yields weighed on the Dow.

US Retail Sales Awaited for Inflation Insights

Upcoming US retail sales figures will give insights into the demand environment and inflation outlook. Economists expect retail sales to increase by 0.5% month-on-month in November after rising 0.4% in October. Robust retail sales may fuel demand-driven inflation, potentially lowering bets on multiple Fed rate cuts.

A more hawkish Fed rate path may elevate borrowing costs, affecting corporate profits and stock prices.

Near-Term Outlook

The DAX’s near-term direction hinges on ECB guidance, US retail sales, and evolving trade developments.

While stronger US data or hawkish Fed signals could drag the index toward the 20,000 mark, softer economic readings and easing global trade fears may reignite bullish momentum. Investors will also closely watch for China stimulus updates, which could alleviate global demand concerns.

As of Tuesday morning, futures pointed to a mixed opening. DAX futures were down 12 points, while the Nasdaq-mini futures gained 8 points.

DAX Technical Indicators

Daily Chart

Despite a three-day losing streak, the DAX remains well above the 50-day and 200-day EMAs, confirming bullish price trends.

If the DAX breaks above Friday’s record high of 20,553, it could enable the bulls to target 21,750 next. Furthermore, a breakout from 20,750 may bring the 21,000 level into sight.

German business sentiment, ECB commentary, and US retail sales will influence DAX trends.

Conversely, a DAX break below 20,150 could bring the 20,000 level into play. A drop through 20,000 may signal a fall toward the 19,675 support level and 50-day EMA.

With the 14-day RSI at 67.13, the DAX could climb to the record high of 20,523 before entering overbought territory.

Final Thoughts

The DAX remains highly sensitive to global drivers, including the Fed’s rate path, US tariff concerns, and ECB guidance. Investors should prepare for heightened volatility ahead of Wednesday’s FOMC decision and economic projections.

Explore in-depth forecasts and actionable strategies here for navigating DAX volatility.