DAX Index Today: Eurozone Inflation, the ECB, US Data, and Fed Chair Powell in Focus

Will inflation figures for the Eurozone fuel investor bets on a Q3 2024 ECB rate cut and a DAX breakout?

The DAX Performance Overview

On Monday, July 1, the DAX advanced by 0.30%. Following a rise of 0.14% on Friday, June 28, the DAX ended the session at 18,291.

Investors reacted to the first round results from the French Election that signaled a hung parliament.

Projections Show the National Rally Party Falls Short of an Absolute Majority

The far-right National Rally party won the first round of the French Elections but by a smaller margin than feared.

Despite the National Rally party win, early projections showed the far-right will likely fall short of an absolute majority on Sunday.

Eurasia Group Managing Director for Europe Mujtaba Rahman commented on the French Election first round results and projections for the Sunday run-off, saying,

“On these numbers, the far right will struggle to win a majority next Sunday. But France’s new Assembly is likely to be a raucous & close to ungovernable place – with Le Pen’s RN the biggest group with wide powers of disruption & favourites for a majority in 1 years time.”

Rahman shared the Ipsos projections that gave the National Rally party and alliances between 230 and 280 seats. They need 289 seats for an absolute majority.

Investors feared for an absolute majority, which could destabilize the Euro area economy and raise concerns about the EU Project.

Softer-than-expected German inflation figures were also a boost for the DAX as investors eye a Q3 2024 ECB rate cut.

German Inflation Fell in June, Raising Bets on an ECB Rate Cut

On Monday, July 1, German inflation neared the ECB target of 2%, falling from 2.4% in May to 2.2% in June. Economists expected a decline to 2.3%.

Oxford Economics Chief German Economist and ECB commentator Oliver Rakau reacted to the inflation numbers, stating,

“German core inflation momentum fell below 2% in June on the Bundesbank’s SA measure as the month-on-month rate averaged 1.8% over the past three months on an annualized base.”

Rising bets on a Q3 2024 ECB rate cut could fuel buyer demand for DAX-listed stocks.

However, the Eurozone inflation numbers on Tuesday, July 2, could be pivotal.

As investors consider the prospects of a French hung parliament and an ECB rate cut, the focus also shifted to the US economy.

US Manufacturing PMI Numbers Highlight Softer Prices and Labor Market Conditions

The US ISM Manufacturing PMI slipped from 48.7 in May to 48.5 in June. Importantly the ISM Manufacturing Employment Index fell from 51.1 to 49.3, with the Prices Index down from 57.0 to 52.1.

The sub-components aligned with recent US inflation and labor market data, supporting bets on a September Fed rate cut.

For context, the US ISM Manufacturing PMI contracted for the third month.

The Monday Market Movers

Bank stocks were among the front-runners as investors reacted to the projections for next Sunday.

Commerzbank and Deutsche Bank rallied 2.96% and 3.34%, respectively.

Auto stocks extended their gains from Friday, with BMW and Volkswagen rising by 0.86% and 0.62%, respectively. Mercedes Benz Group increased by 0.36%, with Porsche advancing by 0.28%.

While French politics will remain a focal point, investors should consider Eurozone inflation numbers on Tuesday.

Will Eurozone Inflation Fuel September Rate Cut Bets?

On Tuesday, inflation figures for the Eurozone will attract investor attention. Economists forecast the annual inflation rate to fall from 2.9% in May to 2.8% in June.

Additionally, economists expect the headline inflation rate to slip from 2.6% to 2.5%.

Softer-than-expected numbers could trigger investor bets on a September ECB rate cut.

ECB President Lagarde spoke about inflation on Monday, July 1, stating,

“It will take time for us to gather sufficient data to be certain that the risks of above-target inflation have passed.”

ECB President Lagarde added that the strong labor market gives the ECB time to consider more data.

However, a deterioration in labor market conditions could adjust the policy outlook. The German unemployment rate unexpectedly increased from 5.9% in April to 6.0% in May, possibly signaling a weakening labor market environment.

For perspective, the Eurozone core inflation rate stood at 5.5% in July 2023 before dropping below 3% in March 2024.

Following softer-than-expected inflation figures from France and Germany, could the Eurozone numbers drive buyer demand for DAX-listed stocks?

Nevertheless, investors should consider comments from the ECB. Reactions to the inflation report could move the dial. ECB President Christine Lagarde is on the calendar to speak on Tuesday.

While the focus will be on Eurozone inflation numbers and the ECB, US labor market data also needs tracking.

Weaker-than-expected US labor market data could raise investor expectations of a September Fed rate cut.

US JOLTs Job Openings to Fall for the Fifth Month

Later in the session on Tuesday, the US JOLTs Job Openings Report could drive buyer demand for DAX=listed stocks.

Economists forecast job openings to fall from 8.059 million in April to 7.900 million in May.

For perspective, job openings last stood below 8 million in February 2021. Post-COVID, job openings peaked at 11.549 million in March 2022.

A drop below 8 million could support expectations of a September Fed rate cut. A deteriorating labor market may affect wage growth, reduce spending, and dampen demand-driven inflation.

With the US labor market in the spotlight, commentary from the Fed also requires monitoring. Fed Chair Powell is on the calendar to speak.

Will the Fed Chair react to the US Personal Income and Outlays Report or wait for the US Jobs Report (Fri)?

Near-Term Outlook

Near-term trends for the DAX will remain hinged on Euro area inflation numbers, the French election, and US labor market data. Softer-than-expected Euro area inflation and a higher US unemployment rate could signal a DAX breakout. However, investors should monitor updates from France as the Sunday run-off looms.

On the Futures markets, the DAX and the Nasdaq mini were down 48 and 71 points, respectively.

In conclusion, rising expectations of ECB and Fed rate cuts are tailwinds for the DAX. However, Euro area and US hard landings and a surprise National Rally party absolute majority on Sunday sink buyer appetite for riskier assets.

DAX Technical Indicators

Daily Chart

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

A return to 18,500 could give the bulls a run at the 18,750 handle. A break above the 18,750 handle would bring 19,000 into view.

The French Election-related news, Eurozone inflation numbers, US labor market data, and central bank chatter require consideration.

Conversely, a DAX drop below the 50-day EMA could give the bears a run at 18,000. A fall through 18,000 would bring the 17,615 support level into play.

The 14-day RSI at 49.13 indicates a drop to the 17,615 support level before entering oversold territory.

4-Hourly Chart

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

A break above the Monday high of 18,461 would support a return to the 18,500 handle.

However, a DAX fall through the 50-day EMA could bring the 200-day EMA into play.

The 14-period 4-hour RSI at 56.78 suggests a DAX return to 18,500 before entering overbought territory.