DAX Index Today: Services PMIs, US Labor Market Data, and France in Focus

As the political landscape unfolds, economic indicators remain in focus. Attention turned to inflation trends on Tuesday, particularly in the Eurozone, where the core inflation rate remained stubbornly high.

The DAX Performance Overview

On Tuesday, July 2, the DAX declined by 0.69%. Reversing a 0.30% gain from Monday, July 1, the DAX ended the session at 18,164.

Eurozone Inflation Stickier Than Expected

Inflation in the Eurozone remained stubborn, with the annual core inflation rate at 2.9% in June. The inflation figures supported comments from ECB President Christine Lagarde, who wanted more data points before supporting rate cuts.

Oxford Economics Head of Europe Economics Angel Talavera noted,

“No major surprises, but no chance of a rate cut in July.”

For context, the core inflation rate peaked at a March 2023 high of 5.7% before dropping below 3% in March 2024.

Moving from inflation concerns in the Eurozone to the US labor market, recent data has shown mixed signals. Later in the European session, better-than-expected labor market data from the US tested buyer demand for DAX-listed stocks. However, comments from Fed Chair Powell cushioned the downside.

US JOLTs Job Opening Report Signals a Weakening US Labor Market

Later in the session on Tuesday, the JOLTs Job Openings Report affected investor expectations of a September Fed rate cut.

Job openings increased from 7.919 million in April to 8.140 million in May. Upward trends in job openings signal a resilient labor market. Higher wages and rising disposable income could fuel consumer spending and demand-driven inflation.

For perspective, in April, job openings fell below 8 million for the first since February 2021.

While the labor market data garnered investor interest, Fed Chair Powell fueled optimism about a September Fed rate cut. The Fed Chair highlighted progress toward bringing inflation to target. However, the Fed Chair noted that wage growth remained elevated.

The US equity markets reflected investor sentiment toward the labor market data and the comments from Fed Chair Powell. The Nasdaq Composite Index advanced by 0.84%, while the Dow and the S&P 500 saw gains of 0.41% and 0.62%, respectively.

The Tuesday Market Movers

The broader market reaction was notable. Tech, auto, and bank stocks reversed their gains from Monday due to concerns about the French Election run-off and persistent inflation in the Eurozone.

BMW slid by 1.26%, while Mercedes Benz Group and Volkswagen declined by 0.11% and 0.28%, respectively. Porsche ended the session down 0.24%.

Commerzbank and Deutsche Bank saw losses of 0.58% and 1.21%, respectively.

Tech stocks Infineon Technologies and SAP declined by 0.65% and 0.26%, respectively.

France Election Watch

The National Rally Party is eyeing a majority in the run-off elections, which could destabilize the European markets. The potential impact on EU financial stability remains a significant concern. Rising support for the National Rally Party could spook investors.

As political uncertainties loom, economic indicators continue to play a critical role. Finalized Euro Area Services PMIs could potentially shift ECB sentiment.

Finalized Euro Area Service Sector PMIs in Focus

On Wednesday, July 3, finalized Services PMIs for Germany and the Eurozone need consideration. Revisions to preliminary figures could attract the attention of the ECB.

According to the preliminary survey, the Eurozone HCOB Services PMI fell from 53.2 to 52.6. Despite the Services PMI falling to a three-month low, selling prices across the services sector continued to rise.

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

“The HCOB PMI do not provide ammunition for another rate cut in July by the ECB. This is because, for the biggest Eurozone economy, Germany, service providers increased their selling prices at a sharper pace than in May.”

Service sector input and output prices may need to soften to support a more marked pullback in headline inflation.

Following the Eurozone data, the focus will shift to the US. Could US labor market data support a September Fed rate cut and later buyer demand for DAX-listed stocks?

US Jobless Claims and ADP Employment Change in Focus

Later in the session on Wednesday, ADP employment numbers and jobless claims will draw investor interest.

Economists expect the ADP to report a 156k rise in employment in June after an increase of 152k in May.

As a precursor to the all-important US Job Report (Fri), weaker-than-expected numbers could raise hopes of a softer US Jobs Report.

However, investors should also consider the jobless claims data. Economists forecast continuing jobless claims to increase from 1,839k to 1,841k in the week ending June 22.

Continuing Jobless Claims have trended higher in Q2 2024, signaling a softening labor market environment.

Arch Capital Global Chief Economist Parker Ross reacted to the jobless claims report from last week, 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.”

A larger-than-expected rise in continuing jobless claims could support bets on a Fed rate cut and the appetite for riskier assets.

Meanwhile, US services sector data may also influence the Fed rate path and market risk sentiment.

Will the US Services Sector Avoid a Contraction?

For June, economists anticipate the ISM Services PMI will decrease to 52.5 from 53.8 in May. Economists expect the ISM Services Prices Index to dip slightly from 58.1 to 57.8.

If service sector activity slows and input prices ease, investors might increase bets on a Fed rate cut in September. Services account for over 70% of the US economy and affect overall inflation.

Yet, investors should consider the ISM Services PMI data in conjunction with US labor market figures.

Near-Term Outlook

Considering the current market dynamics, the combination of economic data, political developments, and market sentiment will influence the near-term outlook.

The DAX could face selling pressure if there are reports of the National Rally Party alliance finding increased support before the run-off on Sunday.

On the Futures markets, the DAX was up by 55 points, while the Nasdaq mini declined by 18 points.

Key Considerations Revisited

In conclusion, downward revisions to Euro area services PMIs and weaker-than-expected US labor market data could support buyer appetite for DAX-listed stocks. However, updates from France on the French Election could be pivotal.

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’s a look at the key technical levels and trends.

DAX Technical Indicators

Daily Chart

The DAX held 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 would support a move to 18,500. A return to 18,500 could signal a move toward the 18,750 handle.

The French Election-related news, Services PMI, and US labor market data need consideration.

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

The 14-day RSI at 44.99 suggests a fall 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 break above the 200-day EMA would support a move to the 50-day EMA. A breakout from the 50-day EMA could signal a move toward 18,500.

However, a DAX drop below 18,000 could give the bears a run at 17,750.

The 14-period 4-hour RSI at 45.05 indicates a DAX fall to 17,750 before entering oversold territory.