DAX Set for a Testy Session on US Inflation and US Debt Ceiling Talks

It was a bearish Thursday for the DAX. The DAX fell by 0.31%. Following a 1.92% slide on Wednesday, the DAX ended the day at 15,794. Notably, the DAX fell short of the 16,000 handle for the first time in six sessions.

German GDP and consumer sentiment figures weighed at the opening bell. In Q1, the German economy entered a technical recession, with the outlook for consumer spending pointing to more pain ahead.

However, progress toward a US debt ceiling deal and US economic indicators provided support late in the European session.

On Thursday, the NASDAQ Composite Index gained 1.71%, supported by AI stocks, with the S&P 500 rising by 0.88%. The Dow slipped by 0.11%.

German Economy Enters a Technical Recession

The German economy contracted 0.3% in Q1 versus a prelim 0.1% contraction. In Q4, the economy contracted by 0.4%. Year-over-year, the German economy contracted by 0.2% versus prelim figures that showed growth of 0.2%. The economy expanded by 0.3% year-over-year in Q4.

According to Destatis,

• Household final consumption expenditure declined by 1.2%, with inflation weighing on spending.
• Weak spending was evident across several areas, including food & beverages, clothing & footwear, and furnishings.
• Government final consumption expenditure fell by a more marked 4.9%, quarter-on-quarter.
• However, investment increased in Q1, with foreign trade also contributing positively.

While the GDP numbers had more significance, German consumer sentiment also drew interest. The GfK German Consumer Climate rose from -25.7 to -24.2 for June versus a forecasted -24.0.

According to the May survey,

• Income expectations improved for an eighth consecutive month. The indicator increased by 2.5 points to -8.2 points.
• However, the propensity to buy and economic expectations waned in May.

US economic indicators were more upbeat, with initial jobless claims increasing from 225k to 229k versus a forecasted 250k. Upward revisions to the Q1 GDP numbers were also bullish. The US economy expanded by 1.3% in Q1 versus a prelim 1.1% and 2.6% growth in Q4.

The Market Movers

It was a mixed day for the auto sector. Continental and Volkswagen saw losses of 0.86% and 0.99%, respectively, with Porsche falling by 0.59%. However, Mercedes-Benz Group and BMW bucked the trend, with gains of 0.47% and 0.18%, respectively.

It was also a mixed session for the banks. Commerzbank gained 0.37%, while Deutsche Bank ended the day with a 0.36% loss.

The Day Ahead for the DAX

It is a quiet day on the European economic calendar, with no euro area economic indicators to provide direction.

However, investors should consider ECB commentary following the German GDP numbers. ECB Chief Economist Philip Lane and ECB Executive Board member Andrea Enria are on the calendar to speak today. Philip Lane will participate in a panel discussion on how quickly inflation will return to target, which will likely draw plenty of interest.

Looking ahead to the US session, it is a busy day on the US economic calendar. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

However, while the stats will draw interest, US debt ceiling-related news will remain the key driver.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,798 pivot to target the First Major Resistance Level (R1) at 15,869 and the Thursday high of 15,873. A return to 15,850 would send a bullish signal. However, the DAX would need the ECB, US economic indicators, and debt ceiling talks to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 15,944 and resistance at 16,000. The Third Major Resistance Level (R3) sits at 16,090.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,723 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid sub-15,700 and the Second Major Support Level (S2) at 15,652. The Third Major Support Level (S3) sits at 15,506.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The DAX sits below the 100-day EMA (15,843). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 100-day EMA (15,843) would support a breakout from R1 (15,869) to target R2 (15,944) and the 50-day EMA (15,958). However, failure to move through the 100-day EMA (15,843) would leave S1 (15,723) in view. A move through the 50-day EMA would send a bullish signal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 1 point, while the NASDAQ mini and Dow were down by 22.25 and 50 points, respectively.

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