DAX Index Today: Will French Election Results Spark a DAX 30 Rally?

Will the first round of the French Election results and projections for next Sunday fuel a DAX rally?

The DAX Performance Overview

On Friday, June 28, the DAX advanced by 0.14%. Following a 0.30% gain on Thursday, June 27, the DAX ended June down 1.42%, closing at 18,236.

Economic indicators from Germany and the US countered investor jitters about the first round of the French Elections.

French Headline Inflation Softened in June

On Friday, French inflation figures for June sent mixed signals. The annual inflation rate fell from 2.3% in May to 2.1% in June. However, the harmonized inflation rate softened less markedly, falling from 2.6% to 2.5%.

The ECB may place more weight on the harmonized figures.

Conversely, German unemployment numbers signaled a deteriorating labor market environment.

German Unemployment Rises Unexpectedly

The German unemployment rate unexpectedly increased from 5.9% in May to 6.0% in June. Unemployed persons rose from 2.762 million to 2.781 million following a 19,000 increase in unemployment.

For context, German unemployment trended higher for three consecutive months before a less marked increase in June.

Weaker labor market conditions could affect wage growth and reduce disposable income. Downward trends in disposable income may curb consumer spending and dampen demand-driven inflation.

While economic indicators from the Euro area attracted investor attention, the crucial US Personal Income and Outlays Report offered late support.

US Inflation Softened While Personal Income Surged in June

Investors responded to the softer US inflation print, with the Core PCE Price Index increasing 2.6% year-on-year in June. The Index advanced 2.8% in May.

However, upward trends in personal income and spending tempered investor bets on a September Fed rate cut.

The US equity markets reflected investor reaction to the personal income and spending numbers. The Nasdaq Composite Index declined by 0.71%, while the Dow and the S&P 500 fell by 0.12% and 0.41%, respectively.

Beyond the economic calendar, investors were also mindful of the Sunday first round of the French Elections. Concerns about a far-right or a far-left victory in the snap French Elections left the DAX in negative territory in June.

The Friday Market Movers

Auto stocks were among the front-runners, with Mercedes Benz Group and Volkswagen rallying 1.80% and 1.39%, respectively. Porsche gained 0.98%, with BMW rising by 0.32%.

Hopes of progress toward the EU dropping tariffs on electric vehicle imports drove buyer demand for auto stocks.

Tech stocks also advanced on softer inflation numbers. Infineon Technologies and SAP saw gains of 0.93% and 1.11%, respectively.

National Rally Party Gets Less Votes Than Feared

On Sunday, June 30, the far-right National Rally party led with almost 34% of the vote in the first round. The left-wing alliance came second, with 28% of the vote, and the Macron alliance a distant third with 21%.

National Rally party leader Jordan Bardella responded to the result, saying,

“I aim to be prime minister for all the French people, if the French give us their votes.”

However, a far-right majority looks in doubt based on the current numbers.

Eurasia Group Managing Director for Europe Mujtaba Rahman shared his views on the French Election first round results and projections for the Sunday run-off, saying,

“On these numbers, the far right will struggle to win a majority next Sunday. But France’s new Assembly is likely to be a raucous & close to ungovernable place – with Le Pen’s RN the biggest group with wide powers of disruption & favourites for a majority in 1 years time.”

Rahman shared the Ipsos projections that gave the National Rally party and alliances between 230 and 280 seats. They need 289 seats for an absolute majority.

An absolute far-right majority could destabilize the EU Project and the Euro area economy. The projections will likely provide market relief going into the Monday session.

As the markets react to first-round results and projections, economic indicators from Germany also need consideration.

Will German inflation numbers fuel investor bets on a September ECB rate cut?

On Monday, finalized manufacturing PMI numbers from the Euro area and German inflation figures warrant investor attention.

Unless there are marked revisions to the preliminary PMIs, the German inflation numbers will impact the DAX more.

Economists forecast the annual inflation rate to fall from 2.4% in May to 2.3% in June. Softer-than-expected figures could raise investor expectations of a Q3 2024 ECB rate cut. A more dovish ECB rate path could drive buyer demand for DAX-listed stocks.

For perspective, the German inflation rate stood at 6.4% in June 2023.

Meanwhile, following the US Personal Income and Outlays Report, the US manufacturing sector will also be in focus.

US Manufacturing Data Unlikely to Influence the Fed Rate Path

Later in the session on Monday, the ISM Manufacturing PMI survey will attract investor attention.

Economists expect the ISM Manufacturing PMI to increase from 48.7 in May to 49.0 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. The US manufacturing sector accounts for less than 30% of the US economy.

However, investors should monitor FOMC Member chatter. Reactions to the US Personal Income and Outlays Report could influence the Fed rate path.

Near-Term Outlook: Bullish

Near-term trends for the DAX will hinge on Euro area inflation numbers, the French election, and US labor market data. Weaker-than-expected Euro area inflation and US labor market data could drive demand for riskier assets. However, the unpredictability of the French Election remains a DAX headwind.

On the Futures markets, the DAX and the Nasdaq mini rallied 116 and 65 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day EMA while holding well 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 return to 18,500 could signal a move toward the 18,750 handle.

The French Elections, German inflation numbers, and central bank commentary require consideration.

Conversely, a DAX break below 18,000 could bring the 17,615 support level into play.

The 14-day RSI at 47.16 suggests a fall to the 17,615 support level before entering oversold territory.

4-Hourly Chart

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

A DAX break above the 50-day EMA could signal a move to the 18,500 handle.

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

The 14-period 4-hour RSI at 50.61 indicates a DAX break above 18,500 before entering overbought territory.