DAX Index Today: German Ifo Business Climate Numbers and Trade War Jitters

As the DAX declined by 0.50% on Friday, June 21, investors are left wondering: what factors are driving this market shift?

The Overview of the DAX Performance

On Friday, June 21, the DAX he DAX slipped 0.50%, erasing some of the previous day’s gains as market uncertainty loomed.

Partially reversing a 1.03% gain from Thursday, June 20, the DAX ended the session at 18,164.

Private sector PMIs, the ECB, and monetary policy influenced market risk sentiment.

Can German Private Sector PMIs Greenlight Consecutive ECB Rate Cuts?

On Friday, private sector PMI numbers from Germany highlighted the fragile German economy.

The more influential HCOB Services PMI fell from 54.2 to 53.5, with the once-dominant manufacturing sector seeing a more marked contraction in June. The HCOB Manufacturing PMI fell from 45.4 to 43.4.

Significantly, employment fell for the first time in three months. However, services inflation accelerated despite the slowest rise in input costs since March 2021, testing investor bets on a Q3 2024 ECB rate cut.

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

“Services input prices, in which labour costs play an important role, have risen almost as much as in May and sales prices are even showing a stronger increase than in the previous month. According to official statistics, wages and salaries rose by 6.3% in the first quarter in Germany, and we’ve seen a continued impact on operating expenses from labour costs in the second quarter. This should be a further reason for the ECB to proceed cautiously with interest rate cuts.”

The US Services Sector and the Perfect Combo of Higher Orders and Lower Prices

Later in the session on Friday, the US S&P Global Services PMI provided market relief. While rising from 54.8 to a 26-month high of 55.1 in June, input price inflation softened.

The combination of rising new orders, higher employment, and lower input costs support expectations of a soft landing and a less hawkish Fed rate path.

Nevertheless, the US equity markets had a mixed end to the week. On Friday, the Dow advanced by 0.04%, while the S&P 500 and the Nasdaq Composite Index fell by 0.16% and 0.18%, respectively. Profit-taking likely contributed to the losses. US 10-year Treasury yields slipped by six basis points to 4.257%. The probability of the Fed leaving interest rates unchanged declined from 35.0% to 34.1% on Friday.

The Friday Market Movers

Risk aversion affected buyer appetite for high-value stocks. Siemens Energy AG led the losses, sliding by 4.65%, while Infineon Technologies declined by 2.99%.

Bank stocks resumed their downward trajectory as investors fretted over the sustainability of the EU Project ahead of the French Elections. Deutsche Bank and Commerzbank saw losses of 1.91% and 1.61%, respectively.

With German business sentiment figures for June on the horizon, investors are asking: will these numbers provide clarity in the midst of market uncertainty?

German Ifo Business Climate Expectations Unlikely to Shine

On Monday, June 24, the German Ifo Business Climate Index will warrant investor attention. Economists forecast the Index to increase from 89.3 to 89.7 in June. Significantly, sub-90 remains a gloomy signal. The Index last sat above 90 in May 2023 and above 100 in July 2021.

While the numbers need consideration, news from China could impact buyer demand for DAX-listed stocks.

Moreover, investors should keep an eye on upcoming ECB statements and French election outcomes, which could significantly influence market movements.

Will ECB Executive Board members voice concerns about the French Election and the EU Project?

Is the EU on the Brink of an All-Out Trade War with China?

German Economy Minister Robert Habeck landed in Beijing on Saturday, June 22, as tensions between China and the EU intensified.

According to media reports, Chinese Prime Minister Li Qiang canceled a meeting with Habeck after warning about the possibility of an all-out trade war.

Deteriorating trade relations with China could adversely affect the German and Euro area economies and the performance of German companies reliant on China.

US Dallas Fed Manufacturing in Focus

Later in the session on Monday, the US Manufacturing sector will be in focus again. Economists expect the Dallas Fed Manufacturing Index to rise from -19.4 to -13.0 in June. Better-than-expected numbers could support investor expectations of a soft landing. Nevertheless, the figures are unlikely to affect the Fed rate path, with manufacturing accounting for less than 30% of the US economy.

Near-Term Outlook

Near-term trends for the DAX will hinge on the French elections, central bank commentary, and the crucial US Personal Income and Outlays Report. Threats from the far-left and far-right to leave the EU and a hotter-than-expected US Personal Income and Outlays Report could send the DAX toward 17,500.

On the Futures markets, the DAX and the Nasdaq mini were down 30 and 23 points, respectively.

As we look ahead to the coming week, one can’t help but wonder: what will be the next catalyst for the DAX’s movement?

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day EMA while sitting well above the 200-day EMA, affirming the bearish near-term but bullish longer-term price signals.

A DAX breakout from the 50-day EMA could give the bulls a run at 18,500. A return to 18,500 could bring the 18,750 level into view.

Geopolitics, central bank commentary, and German business sentiment require investor attention.

Conversely, a DAX break below 18,000 could give the bears a run at the 17,615 support level.

The 14-day RSI at 43.92 indicates a drop to the 17,750 handle 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.

However, a DAX drop below 18,000 could bring the 17,750 handle into play.

The 14-period 4-hour RSI at 46.76 suggests a DAX break below 17,750 before entering oversold territory.