DAX Index Today: Inflation and Election Uncertainty Hit Market Sentiment

Round 1 of the French Election looms, leaving France in the spotlight.

Could a far-left or far-right win derail ECB plans for multiple 2024 interest rate cuts?

DAX Edges Down Amid French Election Jitters and Inflation Concerns

On Wednesday, June 26, the DAX fell by 0.12%. Following a 0.81% loss on Tuesday, June 25, the DAX closed the session at 18,155.

Political Influences: French Elections and Market Reactions

The Economist Poll Tracker has the National Rally Party with a comfortable lead before the first round on June 30, with 37% of the vote. The left-wing New Popular Front was a distant second, with 29% of the vote. Ensemble trailed the leading parties with 21% of the vote.

The markets are likely to react adversely to a far-right or far-left victory. However, a hung parliament, with neither side able to maneuver, could be the best result.

Expert Insights on French Political Dynamics

EurAsia Group Managing Director Europe Mujtaba Rahman shared his views on a caretaker French government, saying,

“Caretaker Govt’s can’t do very much – they can’t propose legislation or govern by decrees. They have limited powers to govern through “circulars” to civil servants. They would almost certainly face political challenges & repudiation by the independent Constitutional Council.”

French politics overshadowed economic data from Germany that supported a Q3 2024 ECB rate cut.

Economic Indicators: German Consumer Confidence

The German GfK Consumer Climate Indicator unexpectedly fell from -21.0 to -21.8 for July. Significantly, the Willingness to Save Indicator advanced, while the Willingness to Buy Indicator softened, signaling a gloomy economic outlook. The sub-components pointed to a pullback in consumer spending, which could dampen demand-driven inflation and support a Q3 2024 ECB rate cut.

Nuremberg Institute for Market Decisions (NIM) consumer expert Rolf Burkl reacted to the numbers, saying,

“The interruption of the recent upward trend in consumer sentiment shows that the path out of the consumer slump will be difficult and that setbacks can occur again and again.”

Despite the gloomy German economic backdrop, government bond yields trended higher mid-week as investors awaited the crucial inflation numbers from the US.

US Inflation and Fed Rate Cut Speculations

Investor jitters about the looming US Personal Income and Outlays Report affected buyer demand for riskier assets.

The CME FedWatch Tool showed the chances of the Fed holding rates steady in September rose from 33.3% to 37.7% on Wednesday. Notably, 10-year US Treasury yields climbed 81 basis points to 4.331%. Hotter-than-expected inflation numbers on Friday could sink investor expectations of a September rate cut and possibly the DAX.

Fed jitters fueled a choppy US equity market session. Nevertheless, the Nasdaq Composite Index and the S&P 500 saw gains of 0.49% and 0.16%, while the Dow rose by 0.04%.

Sector Analysis: Wednesday’s Market Movers

Airbus extended its losses from Tuesday, sliding by 2.82% as investors continued reacting to the recent profit warning and lower forecast for plane deliveries.

Auto stocks were also amongst the worst performers. BMW and Volkswagen declined by 2.53% and 1.64%, respectively. Porsche fell by 1.15%, with Mercedes Benz Group ending the Wednesday session down 0.86%.

Investor reaction to news of Volkswagen planning to invest $5 billion in a joint venture with Rivian left auto stocks in negative territory.

Eurozone Economic Sentiment and ECB Rate Expectations

Economic data for the Eurozone will garner investor attention on Thursday, June 27. Economic Sentiment and Consumer Inflation Expectations could influence the ECB rate path.

Economists expect consumer inflation expectations to fall from 12.5 to 11.3 in June and for the Economic Sentiment Index to rise from 96.0 to 96.2.

Improving sentiment toward the Euro area economy would align with expectations of a better H2 2024. However, an unexpected jump in consumer inflation expectations could spook investors.

The consumer inflation expectation figures precede the ECB Consumer Expectations Survey.

ECB Consumer Expectations Survey May Ease Fears of Sticky Inflation

Oxford Economics Chief Germany Economist and ECB commentator Oliver Rakau had this to say about the upcoming ECB Consumer Inflation Expectations Survey,

“The ECB’s CES release for May is due this week. My Google Trends-based proxy suggests that 1Y inflation expectations continued to edge lower in May and June as past inflation falls continue to filter through to expectations.”

The ECB Consumer Expectations Survey (CES) is out on Friday, June 28. Softer inflation expectations could fuel investor optimism about a Q3 2024 ECB rate cut.

However, investors should also consider US economic data as the US Personal Income and Outlays Report looms.

Can the weekly US jobless claims data influence expectations of a September Fed rate cut?

US Economic Data and Its Impact on the Fed Rate Path

Later in the session on Thursday, US jobless claims figures may influence the Fed rate path. Economists forecast initial jobless claims to fall from 238k to 236k in the week ending June 22.

A larger-than-expected fall in jobless claims could test investor bets on a September Fed interest rate cut. Tight labor market conditions could support wage growth and consumer confidence. Higher wages and improving consumer confidence could fuel consumer spending and demand-driven inflation.

Other stats include durable goods orders and finalized Q1 2024 GDP numbers. However, these will likely play second fiddle to the labor market data.

Near-Term Outlook for the DAX

Near-term trends for the DAX will hinge on the French election, inflation trends, and central bank chatter. Euro area and US inflation figures will affect investor bets on ECB and Fed rate cuts. Hotter-than-expected numbers could affect buyer demand for riskier assets.

On the Futures markets, the DAX and the Nasdaq mini were down 37 and 85 points, respectively. Micron Technologies (MU) released earnings results after the US closing bell, with forward guidance sinking the share price 7.98% in after-hours trading.

DAX Technical Indicators

Daily Chart

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

A breakout from the 50-day EMA could give the bulls a run at 18,500. A break above 18,500 would bring the 18,750 handle into play.

French politics, Eurozone Economic Sentiment, and US labor market data 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 44.40 suggests a fall to the 17,615 support level before entering oversold territory.

4-Hourly Chart

The DAX remained below the 50-day and 200-day EMAs, confirming the bearish price trends.

A DAX breakout from the 200-day EMA could signal a move to the 50-day EMA. A break above the 50-day EMA would bring the 18,500 handle into play.

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

The 14-period 4-hour RSI at 45.79 indicates a drop to the 17,615 support level before entering oversold territory.