DAX Index Today: French Election Uncertainty to Impact Risk Sentiment

Geopolitics could remain center stage as the first round of the French Election looms. Could France destabilize the EU Project by breaching fiscal rules?

Investor jitters were evident on Tuesday, June 25.

The Overview of the DAX Performance

On Tuesday, June 25, the DAX declined by 0.81% to 18,178, reversing a 0.89% gain from Monday, June 24.

French General Elections and the Far-Right National Rally Party

On Tuesday, The Economist showed the latest French Election polling averages. Marine Le Pen and the National Rally Party led the way, with 37% of the vote, followed by the hard-left Nouveau Front Populaire with 29%. Ensemble sat in third place, with 21% of the vote.

The elections will take place on June 30 and July 7, and the polls highlighted the risk of a hard-left government that plans to ramp up spending and taxation. Last week, the EU Commission recommended disciplinary action against France for having budget deficits in breach of the 3% of GDP.

Euroasia Group Managing Director for Europe Mujtaba Rahman summarized the possible outcomes of the French Elections, saying,

“France seems to be heading towards a hung parliament – but one where *no* majority exists in the Assembly to sustain *any* Govt. There is no precedent in recent French politics for such an impasse. For that, you have to go back to the days of the 4th, not 5th, Republic.”

Amidst the French Election debates, profit warnings also hit the DAX.

Airbus Drags the DAX into the Red

On Tuesday, Airbus (AIR) issued a profit warning and lowered its forecast for plane deliveries, impacting the aerospace and defense sectors.

There were no economic indicators from the Euro area to distract investors from the looming French Elections and the latest aircraft manufacturing woes.

Later in the session on Tuesday, the US economic calendar and equity markets provided some relief.

Can US Confidence Pullback Support a Fed Rate Cut?

On Tuesday, economic data from the US failed to move the dial on the chances of a September Fed rate cut. The CB Consumer Confidence Index fell from 101.3 to 100.4 in June. Economists forecast a decline to 100.0. A deteriorating consumer confidence environment could reduce consumer spending and dampen demand-driven inflationary pressures.

Conference Board Chief Economist Dana Peterson commented on the June survey, stating,

“Confidence pulled back in June but remained within the same narrow range that’s held throughout the past two years, as strength in current labor market views continued to outweigh concerns about the future.”

The numbers also had a limited impact on the US equity markets. Tech stocks reversed their losses from the Monday session. On Tuesday, the Nasdaq Composite Index rallied 1.26%, with the S&P 500 advancing by 0.39%. The Dow declined by 0.76%.

The Tuesday Market Movers

Airbus tumbled 9.51%, with engine manufacturer MTU Aero sliding by 3.50%. Military stock Rheinmetall AG also felt the impact of the Airbus news, falling by 1.08%.

Concerns about a hard-left win affected buyer demand for bank stocks. Deutsche Bank and Commerzbank saw losses of 1.17% and 0.14%, respectively.

After a gloomy Tuesday, can German economic data and ECB chatter lift investor spirits?

German Consumer Confidence and the Outlook for Spending

On Wednesday, June 26, the German consumer confidence numbers will be in focus. Economists forecast the GfK Consumer Confidence Index to rise from -20.9 to -18.9 in July.

However, sub-components of the Index may influence investor expectations of a Q3 2024 ECB rate cut more. For June, the Willingness to Buy sub-component remained subdued, signaling an uncertain outlook for consumer spending.

NIM consumer expert Rolf Burkl reacted to the June numbers, saying,

“There still seems to be uncertainty among German consumers. This can be attributed to the lack of clear future prospects in the country, which undermines planning certainty when making purchases. People will have to regain this certainty before they are willing to invest their growing purchasing power in larger purchases.”

While German consumer sentiment requires consideration, ECB speeches will also need monitoring. A green light for a Q3 2024 ECB rate cut could boost buyer demand for the DAX.

ECB Chief Economist Philip Lane in the Spotlight

ECB Chief Economist Philip Lane is on the calendar to speak on Wednesday. Clues on the timing of the next ECB rate cut may influence buyer demand for DAX-listed stocks. Last week, Lane aired confidence that inflation would return to its 2% target in 2025, saying,

“There’s a lot, a fair amount of confidence about the destination in the second half of next year.”

Later in the session on Wednesday, US housing sector data is unlikely to affect the European equity markets. However, investors should monitor FOMC Member commentary as the pivotal US inflation numbers loom.

Near-Term Outlook

Near-term trends for the DAX will remain hinged on the French elections, EU-China Tariff talks, and US inflation numbers. Rising risks of a hard-left win in the French Elections and sticky US inflation numbers could return the DAX to 17,500.

On the Futures markets, the DAX and the Nasdaq mini were up by 55 and 10 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX hovered below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A break above the 50-day EMA could support a move to 18,500. A return to 18,500 could bring the 18,750 handle into play.

French politics, German consumer confidence, and central bank speeches require investor attention.

Conversely, a DAX drop below 18,000 could bring the 17,615 support level into view.

The 14-day RSI at 45.00 indicates a drop to the 17,615 support level before entering oversold territory.

4-Hourly Chart

The DAX sat below the 50-day and 200-day EMAs, sending bearish price signals.

A DAX break above the 200-day EMA would support a move to the 50-day EMA. A move through the 50-day EMA could give the bulls a run at 18,500.

However, a DAX drop below 18,000 could signal a fall toward the 17,615 support level.

The 14-period 4-hour RSI at 45.42 suggests a fall to the 17,615 support level before entering oversold territory.