DAX Index: U.S. and Eurozone Data Propel DAX Stocks; What’s Next?

Highlights

• DAX gains 0.70%, correcting Wednesday’s 0.25% drop, marking the end at a significant 15,324.
• ECB’s Lagarde’s speech awaited; “higher for longer” inflation remarks anticipated but expected.
• US income & outlays report may hint at a December Fed hike and spook investors.

DAX Thursday Overview

On Thursday, the DAX gained 0.70%. Reversing a 0.25% loss from Wednesday, the DAX ended the day at 15,324.

Crude Oil and US Treasury Yields Offer Respite

On Thursday, the European markets ignored a slump in the Hang Seng Index and the Nikkei. After a pre-European session spike, falling US Treasury yields and a pullback in crude oil prices supported buyer appetite.

Investors also responded favorably to softer-than-expected German inflation numbers.

However, US jobless claims beat forecasts, pushing 10-year US Treasury yields to a session high before reversing. US GDP numbers for Q2 also supported the brief spike in yields. The US economy expanded by 2.1% in the second quarter.

The US equity markets responded to the economic indicators, falling crude oil prices, and the pullback in US Treasury yields.

On Thursday, the NASDAQ Composite Index gained 0.83%. The S&P 500 and the Dow ended the day up 0.59% and 0.35%, respectively.

The Thursday Market Movers

Tech and auto stocks rose on the pullback in US Treasury yields and softer German inflation figures.

MTU Aero led the way, jumping 3.85%, and Infineon Technologies ended the session up 1.93%.

Continental AG rallied 2.74%, with Daimler Truck Holding gaining 1.59%.

Eurozone Inflation

German retail sales and unemployment figures will garner interest early in the Friday session. A pickup in retail sales and steady unemployment numbers may offer early support.

However, Eurozone inflation figures must align with the German inflation numbers from Thursday. Hotter-than-expected Eurozone inflation figures would spook investors before the US session.

Economists forecast the core annual inflation rate to soften from 5.3% to 4.8% in September.

With inflation in the spotlight, ECB President Christine Lagarde is on the calendar to speak today. A reiteration of higher for longer would need consideration but shouldn’t surprise the markets.

While economic indicators will provide direction, crude oil prices and government bond yields need monitoring. An upswing in crude oil prices and government bond yields will likely test buyer appetite.

US Core PCE Price Index and Personal Spending in Focus

After the better-than-expected labor market numbers on Thursday, the focus will shift to the Personal Income & Outlays report.

Sticky inflation, a pickup in consumption, and an uptrend in personal income may fuel bets on a December Fed rate hike. US Treasury yield responses to the numbers will likely dictate the direction of the DAX.

Economists forecast personal income to rise by 0.4% in August (July: +0.2%). However, economists predict the Core PCE Price Index to increase by 3.9% year-over-year (July: +4.2%) and personal spending to rise by 0.4% (July: +0.8%).

The DAX and NASDAQ mini were up 40 and 24 points this morning.

Short-Term Forecast

Near-term trends hinge on the Eurozone and US inflation figures out today. Softer inflation numbers will likely support a pullback in government bond yields. However, investors must consider further spikes in crude oil prices, which would test the appetite for riskier assets.

DAX Technical Indicators

Daily Chart

The DAX remained below the 50-day and 200-day EMAs, affirming bearish price signals. A break below the 15,245 support level would give the bears a look at the 15,058 support level.

Hotter-than-expected Eurozone and US inflation numbers will likely weigh on DAX stocks.

However, a DAX rise to 15,400 would support a move to the 15,459 resistance level and the 200-day EMA. Selling pressure will intensify in the 15,450 – 15,460 range. The 200-day EMA is confluent with the 15,459 resistance level.

The 14-Daily RSI reading of 36.79 indicates a DAX fall through the 15,245 support level before entering oversold territory.

4-Hourly Chart

The DAX, remaining below the 50-day and 200-day EMAs, reaffirms bearish price signals. A DAX fall through the 15,245 support level would bring the 15,058 support level into view.

However, a DAX return to 15,400 would support a break above the 15,459 resistance level to target 15,500.

The 38.63 RSI reading supports a DAX fall through the 15,245 support level before reentering the oversold territory.

For a look at the economic events, check out our economic calendar.