DAX Index Today: Investors Eye French and US Inflation Reports

French inflation figures could ignite fears of a delay to ECB rate cuts, while US inflation numbers will influence bets on a September Fed rate cut. The DAX could face a choppy end to the second quarter.

The DAX Performance Overview

On Thursday, June 27, the DAX gained 0.30%. Reversing a 0.12% loss from Wednesday, June 26, the DAX ended the session at 18,211.

While the DAX bucked the broader European market trend, investors remained cautious before the French Elections and the critical US inflation report.

French Elections: National Rally Party Leads the Polls

The Economist Poll Tracker had the National Rally Party with a sustained lead before the first round on Saturday, June 30, holding 37% of the vote. The left-wing New Popular Front had 29% of the vote. Ensemble continued to lag the leading parties, with 21% of the vote.

French Elections and EU Stability

Debates about a far-right win continued on Thursday, with investor jitters about a National Rally party victory intensifying.

Eurasia Group Managing Director for Europe Mutjaba Rahman discussed the possible issues for France and the EU, saying:

“Le Pen & Bardella’s more “moderate” program involves a major conflict with Bxl over 3 fundamental pillars of EU as we know it – the Single Market (domestic subsidies); EU budget (French rebate) & Stability & Growth Pact (deficit slippage vs reduction).”

Rahman also commented on reports of German Finance Minister questioning any ECB support for France, stating:

“On the ECB supporting France in the event of a currency crisis, Germany’s finance minister Lindner said he hoped the ECB would not have to take action, adding that this would raise ‘economic and… constitutional questions’.”

Is the biggest fear for the markets a far-right or far-left victory and the destabilization of the EU?

Will US jobless Claims Influence Fed Rate Decisions?

On Thursday, investors raised bets on a September Fed rate cut in response to US economic indicators.

According to finalized numbers, the US economy slowed from 3.4% to 1.4% in Q1 2024.

Furthermore, the number of insured unemployed persons climbed to their highest level since 2021, highlighting a deterioration in US labor market conditions.

Arch Capital Global Chief Economist Parker Ross responded to the latest jobless claims report, stating:

“Continuing claims of 1,839k (sa) surprised more meaningfully to the upside for the week ending June 15 (1,828k cons) but was just above my estimate of 1,835k. […]. Continuing claims still reflect a more substantial softening of the labor market.”

The US equity markets responded to hopes of a softer US inflation print and the later labor market data. The Nasdaq Composite Index advanced by 0.30%, with the Dow and the S&P 500 seeing gains of 0.09% and 0.09%, respectively.

The Thursday Market Movers

MTU Aero rallied 5.57% as investors shifted focus away from Airbus, its recent profit warning, and lower forecast for plane deliveries.

However, it was a mixed session for bank and auto stocks as investors considered the French Elections and EU tariffs on China EV imports.

Deutsche Bank gained 0.79%, while Commerzbank fell by 0.21%.

Mercedes Benz Group slid by 1.28%, while Porsche and Volkswagen fell by 0.97% and 0.81%, respectively. BMW bucked the trend, gaining 0.16%.

Reports of the EU adjusting its tariffs on electric vehicle imports from China raised hopes of further progress to avert an all-out trade war. However, the adjustments were minor, limiting the influence on auto stocks.

Could an end to EU tariffs fuel an auto sector breakout?

German Unemployment to Influence ECB Rate Cut Bets

On Friday, German unemployment figures could influence investor expectations of a Q3 2024 ECB rate cut. Economists forecast unemployment to increase from 2.762 million to 2.770 million in June. A larger-than-expected rise could signal a further weakening in consumer confidence. Waning consumer confidence could affect consumer spending and dampen demand-driven inflation.

However, investors should also consider preliminary French inflation numbers for June. Could French inflation derail ECB rate cut plans?

French Inflation: Economists Expect Higher Inflation

Economists forecast the French annual inflation rate to rise from 2.3% to 2.5% in June. Investors could consider the numbers from France as a guide to inflation trends for the broader Euro area. Hotter-than-expected numbers may impact buyer demand for DAX-listed stocks.

However, US inflation numbers could be crucial in the ongoing debate about a September Fed rate cut.

US Inflation Numbers to Dictate Q3 2024 Fed Rate Path

Later in the session on Friday, US Core PCE Price Index numbers will be a crucial data release.

Economists forecast the Core PCE Index to increase 2.6% in May after a rise of 2.8% in April. Softer-than-expected numbers could fuel investor bets on a September Fed rate cut and buyer demand for riskier assets.

While the US equity markets will take their cues from the inflation numbers, the French Election will remain a consideration.

Near-Term Outlook

Near-term trends for the DAX will hinge on the French election, the inflation numbers, and central bank commentary. Softer-than-expected US inflation numbers could provide investor relief. However, uncertainty about the French Elections could limit the upside.

On the Futures markets, the DAX and the Nasdaq mini were up 47 and 76 points, respectively.

DAX Technical Indicators

Daily Chart

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

A break above the 50-day EMA would support a move toward 18,500. A breakout from 18,500 could give the bulls a run at the 18,750 handle.

The French Elections, German unemployment, and inflation numbers from France and the US need consideration.

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

The 14-day RSI at 46.29 indicates a drop to the 17,615 support level before entering oversold territory.

4-Hourly Chart

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

A DAX move above the 50-day EMA could give the bulls a run at the 18,500 handle.

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

The 14-period 4-hour RSI at 49.17 suggests a fall to the 17,615 support level before entering oversold territory.