Key Points:
- The DAX gained 0.27% on Friday, closing the session at 17,419.
- Economic indicators from Germany signaled a worsening economic backdrop.
- On Monday, central bank chatter warrants investor attention, with ECB President Lagarde on the calendar to speak amidst bets on an April ECB rate cut.
Overview of the DAX Performance on Friday
The DAX gained 0.27% on Friday. Following a 1.47% rally on Thursday, the DAX ended the session at 17,419. Significantly, the DAX reached an all-time high of 17,444.
An Economic Contraction and Business Sentiment in Focus
On Friday, the German economy was in the spotlight. The German economy contracted by 0.3% quarter-on-quarter in Q4, unchanged from the preliminary number.
Significantly, private consumption contributed positively in Q4, with the auto sector standing out from a gloomy manufacturing sector environment.
Despite the grim macroeconomic backdrop, business sentiment improved in February, albeit modestly. The Ifo Business Climate Index increased from 85.2 to 85.5. Economists forecast a reading of 85.5. Firms were less pessimistic about the economic outlook. However, business sentiment toward current conditions was unchanged.
US Market Session Signaled a Possible Top
The NVIDIA (NVDA) Effect failed to deliver a second breakout session. On Friday, the Nasdaq Composite Index declined by 0.28%. The Dow and S&P 500 ended the day up 0.16% and 0.03%, respectively.
There were no US economic indicators for investors to consider. The lack of data and Fed speakers left the Nasdaq in negative territory as investors locked in profits. Significantly, the DAX retreated from its all-time high, with tech stocks under pressure.
The Friday Market Movers
Auto stocks were among the front-runners for the third consecutive session. BMW and Porsche saw gains of 1.56% and 1.69%, respectively. Volkswagen ended the day up 1.31%, with Mercedes-Benz Group rising by 0.58%.
Bank stocks also ended the session in positive territory, with Standard Chartered reporting an 18% jump in pre-tax profits. The Asian-focused bank also announced a $1 billion share buyback. SCB shares gained 4.85% on Friday. Commerzbank and Deutsche Bank ended the session up 0.19% and 1.13%, respectively.
However, Allianz slid by 3.37% on an earnings miss, with BASF falling by 0.52%. Investors reacted to Q4 earnings and cost-cutting plans for 2024.
ECB President Lagarde in the Spotlight
On Monday, ECB President Christine Lagarde is on the calendar to speak. Unwavering commitment to leave rates higher for longer to tame inflation could impact DAX-listed stocks.
In recent speeches, ECB speakers have raised concerns about cutting rates too early. However, the macroeconomic environment continues to fuel expectations of an April ECB rate cut. Comments relating to the economic outlook, inflation, and the timeline to cut interest rates would move the dial.
There are no euro area stats for investors to consider. However, corporate earnings remain a focal point.
US Economic Calendar: Manufacturing, the Housing Sector, and Fed Speakers
US housing sector data and the Dallas Fed Manufacturing Index will draw investor interest on Monday. Economists consider US housing sector data to be leading indicators for the US economy. A deterioration in housing sector conditions could impact consumer confidence and spending. However, investors must consider trends, with inventory levels causing sizeable monthly swings.
The Dallas Fed Manufacturing Index could also move the dial. Cracks in the US economy could refuel bets on a May Fed rate cut. However, economists forecast the Dallas Fed Manufacturing Index to jump from -27.4 to -8.0 in February. In January, the Index fell to its lowest level since June 2023.
Beyond the numbers, investors must track FOMC member speeches. Reactions to the recent inflation reports and views on the timeline for a Fed rate cut need consideration.
Short-term Forecast
Near-term trends for the DAX remain hinged on ECB and Fed speeches. However, euro area and US inflation figures will impact market bets on H1 2024 ECB and Fed rate cuts. Softer inflation numbers and rising bets on rate cuts could deliver new highs.
On Monday, the DAX futures and Nasdaq mini were down 39 and 43 points, respectively.
DAX Technical Indicators
Daily Chart
The DAX sat well above the 50-day and 200-day EMAs, affirming the bullish price signals.
A DAX break above the Friday all-time high of 17,444 would support a move to the 17,500 handle.
Central bank commentary and US economic data need consideration.
A drop below the 17,350 handle would bring the 50-day EMA into view.
The 14-day RSI at 71.26 shows the DAX in overbought territory. Selling pressure could intensify at the ATH of 17,444.
4-Hourly Chart
The DAX remained above the 50-day and 200-day EMAs, affirming the bullish price signals.
A DAX breakout from the 17,444 all-time high would give the bulls a run at 17,500.
However, a DAX drop through the 17,350 handle would bring sub-17,200 and the 50-day EMA into play.
The 14-period 4-hour RSI at 74.73 shows the DAX sitting in overbought territory. Selling pressure could intensify at the all-time high of 17,444.
