DAX Index Today: German Factory Orders and ECB Outlook in Focus

Rising bets on a September Fed rate cut fueled buyer demand for riskier assets amidst hopes of France averting a far-right absolute majority.

Will the optimism continue?

The DAX Performance Overview

On Wednesday, July 3, the DAX rallied 1.16%. Reversing a 0.69% loss from Tuesday, July 2, the DAX closed the session at 18,375.

France Election Watch: National Rally Party Hopes of Victory Waning

Fears of a National Rally Party absolute majority faded on Wednesday. News of candidates stepping down from the Election run-off raised hopes of France avoiding the far-right from disrupting the Euro area economy and destabilizing the EU Project.

EurAsia Group Managing Director Europe Mujtaba Rahman shared the latest polls, saying,

“First full poll since the Republican Front made the 2nd round of French elections a straight fight between the Far Right and most of the rest. Harris projects at most 220 seats for Le Pen’s party, 70 short of a majority”

Averting an absolute majority is an immediate positive for the European equity markets.

Once the dust settles, will there be a sense of inevitability after the far right and the far left beat the centralists in the first round?

Eurozone Services PMIs Support Q3 2024 ECB Rate Cut

The Eurozone HCOB Services PMI fell from 53.2 in May to 52.8 in June, up from a preliminary 52.6. Significantly, input cost inflation dipped to a 38-month low, with output prices rising at the least marked pace in over three years.

The softer price trends could raise investor expectations of a Q3 2024 ECB rate cut.

However, Hamburg Commercial Bank Chief Economist Dr. Cyrus de la Rubia commented on the price trends, saying,

“The European Central Bank (ECB), which cut interest rates in June, is getting some support for this decision from the HCOB Services PMI price indices. […]. Looking forward, the ECB will remain cautious, as the price increases are still way above pre-pandemic averages and still unusually high given the fragile state of the economy.”

Meanwhile, US economic indicators offered signals of a waning US labor market that could enable a September Fed rate cut.

US Labor Market Data Signals a September Fed Rate Cut

Later in the session on Wednesday, the ADP reported a 150k increase in employment in June after a 157k rise in May. For context, the June increase was the lowest increase since January.

Continuing jobless claims also signaled a waning US labor market, rising from 1,832k to 1,858k in the week ending June 22.

Arch Capital Global Chief Economist Parker Ross reacted to the jobless claims report, saying,

“While both measures of unemployment have been deteriorating since the beginning of the year, continuing claims still reflect a more substantial softening of the labor market.”

For perspective, US continuing jobless claims reached the highest level since 2021.

Beyond the labor market, US services sector data highlighted the effects of Fed monetary policy on the US economy. Could the US economy face a hard landing as cracks begin to show?

US IMS Services PMI Sinks Below 50

The all-important ISM Services PMI fell from 53.8 to 48.8 in June, signaling a service sector contraction. Accounting for over 70% of the US economy, a contraction across the US services sector could support a more dovish Fed rate path. However, the drop below 50 could retrigger fears of a US hard landing.

Nevertheless, the labor market and services sector data fueled bets on a September Fed rate cut, driving buyer demand for riskier assets.

On Wednesday, July 3, the Nasdaq Composite Index and the S&P 500 gained 0.88 and 0.51%, respectively, while the Dow slipped by 0.06%.

The Wednesday Market Movers

Auto, bank, and tech stocks reversed their losses from the Tuesday session. Investors reacted to election-related news from France and economic indicators supporting ECB and Fed rate cuts.

Sartorius AG and Siemens Energy AG rallied 4.10% and 3.51%, respectively, with Infineon Technologies up 1.73%.

Deutsche Bank ended the session up 3.44%, with Commerzbank advancing by 0.41%.

Porsche led auto stocks into positive territory, rising by 1.09%, with Mercedes Benz Group gaining 0.88%.

Amidst rising hopes of ECB and Fed rate cuts, the German economy will be in focus on Thursday, July 4.

German Factory Orders in the Spotlight

German factory orders will attract investor attention on Thursday. Economists expect factory orders to increase by 0.5% in May after falling by 0.2% in April.

The numbers are unlikely to influence the ECB interest rate trajectory. Manufacturing contributes less than 20% to the German economy. Nevertheless, better-than-expected numbers may indicate an improving demand environment.

Meanwhile, the ECB Monetary Policy Meeting Minutes and comments from the ECB could influence buyer appetite for DAX-listed stocks.

How Will the ECB Chief Economist View Inflation?

ECB Chief Economist Philip Lane is on the calendar to speak. Views on the hotter-than-expected core inflation numbers for the Eurozone need consideration. Concerns about inflation and suggestions to delay rate cuts could adversely impact the DAX.

There are no US economic indicators to consider, with the US markets closed for the Fourth of July holidays.

Near-Term Outlook

Near-term trends for the DAX will hinge on French election-related updates, the US Jobs Report (Fri), and central bank commentary.

On the Futures markets, the DAX was up by 9 points, while the Nasdaq mini fell by 11 points.

In conclusion, rising bets on ECB and Fed rate cuts and easing fears of a National Rally Party majority could fuel another DAX rally.

Investors should track the news wires, real-time economic data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest updates and insights to navigate the equity markets effectively.

To better navigate these market conditions, understanding the technical indicators for the DAX is crucial. Here is a look at the key technical levels and trends.

DAX Technical Indicators

Daily Chart

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

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

The French Election-related updates, ECB commentary, and German factory orders need consideration.

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

The 14-day RSI at 52.20 indicates a move to the 18,750 handle before entering overbought territory.

4-Hourly Chart

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

A breakout from 18,500 would support a move toward the 18,750 handle.

However, a DAX break below the 50-day and 200-day EMAs would bring the 18,000 handle into play.

The 14-period 4-hour RSI at 58.87 suggests a DAX return to 18,750 before entering overbought territory.