DAX Index Today: Fed Rate Cut Bets and German Data Influence Market Sentiment

DAX Advances on Friday

On Friday, July 26, the DAX advanced by 0.65%. Reversing a 0.48% loss from Thursday, July 25, the DAX closed the session at 18,418.

Friday: DAX Market Movers

• Sartorius AG rallied 6.52%, with the DAX seeing broad-based sector gains.
• Retail stocks Adidas and Zalando SE gained 1.70% and 1.60%, respectively.
• Tech stocks trended higher on Fed rate cut bets, with SEP and Infineon Tech rising by 0.29% and 0.82%, respectively.

German Retail Sales and the ECB Rate Path

On Monday, July 29, German retail sales will draw investor interest. Economists forecast retail sales to stall in May after sliding by 1.2% in April.

Weaker-than-expected numbers may impact retail stocks. However, downward trends in consumer spending may dampen demand-driven inflation, supporting a more dovish ECB rate path. A more dovish ECB rate path may boost demand for rate-sensitive DAX-listed stocks.

Expert Commentary

In June, Oxford Economics Chief German Economist Oliver Rakau commented on the April numbers, stating,

“I guess this is what demand destruction (combined with a demand shift back to services) looks like. I suspect the timing of Easter may have exasperated the fall. Still, supports my view of a Q2 GDP contraction.”

Germany’s Q2 GDP numbers are out on Tuesday, July 30.

US Inflation Fuel Fed Rate Cut Bets

On Friday, July 26, US inflation figures raised investor bets on multiple 2024 Fed rate cuts.

The PCE Price Index increased 2.5% year-on-year in June after a 2.6% rise in May, supporting Fed rate cut bets.

According to the CME FedWatch Tool, the probability of a September Fed rate cut increased from 98.1% on July 19 to 100% on July 26. Moreover, the chances of a December Fed rate cut rose from 93.6% on July 19 to 97.9% on July 26.

Arch Capital Global Chief Economist Parker Ross said,

“The June PCE price index printed right in-line with expectations at 0.08% m/m, continuing the string of soft headline inflation reports for the month. Market odds of a Sept rate cut were roughly unchanged after the report at ~110% (i.e., a 25bps cut fully priced in, with some expecting a potential 50bps cut).”

US Market Trends

On Friday, the US equity markets responded to the inflation numbers and 51 basis points drop in 10-year US Treasury yields.

The Dow rallied 1.64%, while the Nasdaq Composite Index and the S&P 500 saw gains of 1.03% and 1.11%, respectively.

Dallas Fed Manufacturing Index

On Monday, the US manufacturing sector will be in focus. Economists expect the Dallas Fed Manufacturing Index to rise from -15.1 in June to -12.0 in July.

Better-than-expected numbers may support investor bets on a soft US landing. However, the figures are unlikely to influence the Fed rate path, with goods prices trending lower in June.

Charles Schwab Senior Investment Strategist Kevin Gordon reacted to the June Report, stating,

“Dallas Fed Manufacturing Index 6-month outlook for new orders rose in June to highest since March 2022 … employment outlook went the other way and fell to lowest since December 2023.”

A continued downward trend in employment and an uptick in new orders could boost demand for riskier assets.

Near-Term Outlook

Near-term DAX trends hinge on corporate earnings, Euro area inflation numbers, and the Fed interest rate decision. Softer Euro area inflation numbers could raise investor bets on multiple 2024 ECB rate cuts. Fed support for September and December rate cuts could also boost demand for riskier assets. However, weaker-than-expected earnings and downward revisions to forecasts could counter ECB and Fed rate cut bets.

In the futures markets, the DAX and the Nasdaq mini were up by 69 and 133 points, respectively.

Investors should remain alert with corporate earnings, economic data, and monetary policy in focus. Monitor the news wires, economic data, and expert commentary to manage trading strategies. Stay up-to-date with our latest news and analysis to manage risk.

DAX Technical Indicators

Daily Chart

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

A DAX break above the 18,500 handle would support a move toward 18,750. A return to 18,750 could signal a move toward 19,000.

German retail sales, US economic data, and corporate earnings require consideration.

Conversely, a DAX break below the 50-day EMA could signal a fall toward 18,000.

The 14-day RSI at 50.71 suggests a DAX break above 18,750 before entering overbought territory.

4-Hourly Chart

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

A return to 18,500 could give the bulls a run at the 18,750 handle.

However, a DAX break below the 50-day EMA would bring the 200-day EMA into play.

The 14-period 4-hour RSI at 51.19 indicates a DAX return to 18,750 before entering overbought territory.