DAX Index: US Producer Prices, Central Bank Chatter, and US Bank Earnings

Highlights

• The DAX declined by 0.86% on Thursday, ending the session at 16,547.
• US inflation numbers sent the DAX into negative territory.
• On Friday, the markets will focus on euro area inflation, US bank earnings, US producer prices, and central bank commentary.

Overview of the DAX Performance on Thursday

The DAX declined by 0.86% on Thursday. Reversing a 0.01% gain from Wednesday, the DAX ended the session at 16,547.

Euro Area Economic Indicators Disappointed

On Thursday, industrial production numbers from Italy raised the threat of a euro area recession. Industrial production slid by 1.5% in November after falling 0.2% in October. Economists forecast a 0.2% decline.

The industrial production numbers aligned with comments from the ECB Economic Bulletin. The ECB highlighted monetary policy more significantly impacted the manufacturing sector than the services sector.

US CPI Report Sinks the DAX on Shift in Bets Toward a March Fed Rate Cut

On Thursday, the US CPI Report warranted investor attention. Hotter-than-expected inflation numbers initially eased bets on a March Fed rate cut, impacting buyer demand for riskier assets.

The US annual inflation rate increased from 3.1% to 3.4% in December, while core inflation eased from 4.0% to 3.9%. Economists forecast rates of 3.2% and 3.8%, respectively.

US jobless claims figures also supported a less dovish 2023 Fed rate path. Initial jobless claims slipped from 203k to 202k in the week ending January 6.

However, the US equity markets recovered from heavy losses later in the US session, ending the day mixed. On Thursday, the Dow gained 0.04%, while the S&P 500 declined by 0.07%. The Nasdaq Composite Index ended the session flat. 10-year US Treasury yields rose to a session high of 4.068%. However, a late reversal left yields down 1.54% at 3.968% for the session.

The Thursday Market Movers

Easing bets on a March Fed rate cut impacted retail-linked, tech, and auto stocks.

Online retailer Zalando SE and Adidas saw losses of 2.49% and 0.97%, respectively. Infineon Technologies and Siemens Energy declined by 1.48% and 2.00%, respectively.

Daimler Truck Holding and BMW fell by 2.19% and 1.44%, respectively, with Mercedes-Benz Group down 1.18%. Porsche and Volkswagen ended the session down 0.39% and 0.12%, respectively.

Bank stocks also suffered from the threat of a higher for longer Fed rate path. Deutsche Bank tumbled 4.31%, with Commerzbank falling by 1.30%.

However, Rheinmetall AG gained 0.72% on rising geopolitical tensions.

Euro Area Inflation and the ECB in Focus

On Friday, finalized inflation numbers for France will draw investor interest. Upward revisions to preliminary numbers could test buyer demand for DAX-listed stocks. According to preliminary numbers, the French annual inflation rate increased from 3.5% to 3.7% in December.

Beyond the numbers, ECB commentary also needs consideration. ECB Chief Economist Philip Lane is on the calendar to speak on Friday.

While the stats and ECB will influence, falling bets on a March Fed rate cut could give the DAX an early boost. In the futures, the DAX was up 101 points. However, rising geopolitical tensions could impact market risk sentiment.

US Economic Calendar: US Producer Prices and the Fed

On Friday, US producer prices for December will garner investor interest. A more marked-than-expected rise in producer prices could test bets on a March Fed rate cut. Economists forecast producer and core producer prices to increase by 0.1% and 0.2%, respectively. Producer prices and core producer prices were flat in November.

However, investors must consider Fed commentary after the US CPI Report and bets on a March Fed rate cut. FOMC member Neel Kashkari is on the calendar to speak on Friday.

Beyond the economic calendar, US bank earnings will also move the dial. Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) will be in the spotlight.

Short-Term Forecast

Near-term DAX trends will hinge on central bank commentary, euro area inflation, and US producer prices. Softer-than-expected US producer price numbers could support bets on a March Fed rate cut. However, investors must also consider US bank earnings.

DAX Technical Indicators

Daily Chart

The DAX sat above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX break above the Thursday high of 16,840 would give the bulls a run at the all-time high (AHT) of 17,003.

Euro area inflation, US producer prices, central bank commentary, and bank earnings are in focus.

However, a break below the 16,500 handle would support a fall to the 16,470 support level.

The 14-day RSI reading of 50.64 suggests a DAX return to the 17,000 handle before entering overbought 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 break above the 50-day EMA would give the bulls a run at the ATH of 17,003.

However, a drop below the 16,500 handle would bring the 16,470 support level into play.

The 41.44 14-4 hour RSI suggests a DAX fall through the 16,470 support level before entering oversold territory.

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