DAX Set for a Bullish Open on China Stats and Debt Ceiling Vote

The Market Movers

It was a bearish day for the auto sector. Continental and Porsche tumbled by 4.74% and 3.92%, respectively, with BMW falling by 2.17%. Volkswagen and Mercedes-Benz Group saw losses of 1.87% and 2.01%, respectively.

It was also a bearish session for the banks. Commerzbank and Deutsche Bank ended the day down 2.25% and 1.76%, respectively.

The Day Ahead for the DAX

Before the European session, economic data from China set the tone.

China’s all-important Caixin Manufacturing PMI for May gave investors a better view of the macroeconomic environment midway through the second quarter. The all-important Caixin Manufacturing PMI increased from 49.5 to 50.9 in May versus a forecasted 50.3.

News of the US House of Representatives vote on the US debt ceiling deal also needs consideration after a vote in favor of the debt ceiling deal.

However, it is also a busy day on the European economic calendar.

April German retail sales figures kickstart the European session. Following disappointing Q1 GDP numbers, a pickup in consumer spending should provide some comfort. Economists forecast German retail sales to increase by 1.0%. Retail sales fell by 2.4% in March.

However, Spanish and Italian manufacturing PMIs and finalized manufacturing PMIs from France, Germany, and for the Eurozone and prelim euro area inflation numbers will also draw interest. Barring material revisions to the prelim PMI numbers, we expect prelim inflation numbers to have more impact.

Economists forecast the annual inflation rate to hold steady at 7.0% and core inflation to soften from 5.6% to 5.5%. Hotter-than-expected euro area inflation figures would force the ECB to continue raising interest rates to tame inflation.

The ECB will also be in the spotlight, with the ECB Monetary Policy Meeting Accounts and ECB member commentary in focus. ECB President Christine Lagarde and Executive Board member Andrea Enria are on the calendar to speak today.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar.

ADP nonfarm employment change, initial jobless claims, and the ISM Manufacturing PMI will move the dial. While investors are pricing in a more dovish Fed, solid labor market numbers could refuel bets on a 25-basis point June interest rate hike.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike tumbled from 66.6 to 26.4% on Wednesday as the markets responded to Fed chatter that favored a June pause.

However, FOMC members and US debt ceiling-related news will also need consideration later today.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,722 pivot to target the First Major Resistance Level (R1) at 15,814 and the Wednesday high of 15,872. A return to 15,750 would send a bullish signal. However, the DAX would need economic indicators and debt ceiling news to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 15,965. The Third Major Resistance Level (R3) sits at 16,208.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,571 in play. However, barring another risk-off-fueled sell-off, the DAX should avoid the Second Major Support Level (S2) at 15,479. The Third Major Support Level (S3) sits at 15,236.