DAX Index: The ECB Meeting Minutes, ECB President Lagarde and the Fed

Highlights

• The DAX slid by 0.84% on Wednesday, ending the session at 16,432.
• Economic data from China, ECB chatter, and US economic indicators left the DAX in negative territory.
• On Thursday, the ECB monetary policy meeting minutes, US jobless claims, and central bank commentary need consideration.

Overview of the DAX Performance on Wednesday

The DAX slid by 0.84% on Wednesday. Following a 0.30% loss on Tuesday, the DAX ended the session at 16,432.

China Stats and the ECB Send the DAX into Negative Territory

On Wednesday, economic indicators from China set the tone for the session. The Chinese economy grew by 5.2% in Q4, falling short of a 5.3% forecast. Retail sales weakened, raising concerns about the domestic demand environment after the wave of stimulus measures.

ECB commentary contributed to the losses, as investors reduced bets on a Q1 ECB rate cut. ECB President Christine Lagarde continued to warn that the battle against inflation is not over. The Dutch central bank governor Klaas Knot said,

“Markets are getting ahead of themselves. We are optimistic that we have a credible prospect of a return of inflation to 2% in 2025, but a lot still needs to go well for that to happen.”

US Retail Sales Beat Forecasts Impacting Bets on Fed Rate Cuts

On Wednesday, US retail sales rose by 0.6% in December after increasing by 0.3% in November. Economists forecast retail sales to rise by 0.4%. The better-than-expected numbers further reduced bets on a March Fed rate cut. 10-year US Treasury yields, and the US equity markets responded to the numbers.

On Wednesday, the Nasdaq Composite Index and S&P 500 saw losses of 0.59% and 0.56%, respectively. The Dow declined by 0.25%. 10-year US Treasury yields increased by 1.08%, ending the session at 4.106%.

The Wednesday Market Movers

ECB forward guidance on interest rates, economic indicators from China, and easing bets on a March Fed rate hike impacted retail-linked and tech stocks.

Online retailer Zalando SE and Adidas tumbled by 5.09% and 3.77%, respectively. Infineon Technologies and Siemens Energy AG saw losses of 3.21% and 3.45%, respectively.

Auto stocks tracked the broader market into negative territory. BMW and Mercedes-Benz Group ended the session down 3.11% and 3.20%, respectively. Volkswagen and Porsche fell by 2.34% and 0.88%, respectively.

Rheinmetall AG continued to buck the trend, gaining 1.69% amidst increasing geopolitical tensions in the Middle East.

ECB Monetary Policy Meeting Minutes and Speeches in Focus

On Thursday, the ECB will be in the spotlight. The ECB monetary policy meeting minutes from December warrant investor attention. Recent ECB commentary has impacted buyer demand for DAX-listed stocks. European central bankers warned the markets about betting on ECB rate cuts.

Less dovish than expected minutes could influence the buyer appetite for riskier assets.

However, investors must also consider ECB commentary. ECB President Christine Lagarde is on the calendar to speak on Thursday.

The US Jobless Claims and Fed Speakers

On Thursday, the US labor market will be in the spotlight. Tighter labor market conditions would reduce bets on a March Fed rate hike. Economists forecast initial jobless claims to increase from 202k to 207k in the week ending January 13.

However, the Philly Fed Manufacturing Index and housing sector-related data also need consideration. Weak numbers could test bets on a US soft landing.

Beyond the numbers, FOMC member Raphael Bostic is on the calendar to speak. Calls for a delay to cutting interest rates could pressure the DAX.

Short-Term Forecast

Near-term DAX trends hinge on the ECB minutes, US labor market stats, and central bank chatter. Less dovish than expected ECB minutes and central bank comments could continue to pressure the DAX. However, US labor market numbers could also move the dial.

In the futures, the DAX was up 11 points, while the Nasdaq mini was down 5 points.

DAX Technical Indicators

Daily Chart

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

A DAX break above the 16,470 resistance level would support a DAX move toward the all-time high (AHT) of 17,003.

Investors must consider the ECB meeting minutes, US jobless claims, and central bank commentary.

However, a fall through the 50-day EMA would give the bears a run at the 16,290 support level.

The 14-day RSI reading of 44.32 suggests a DAX break below the 16,290 support level before entering oversold territory.

4-Hourly Chart

The DAX sat 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 16,470 resistance level would give the bulls a run at the 50-day EMA.

However, a drop below the 16,400 handle would bring the 16,290 support level into play.

The 36.94 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.