PMIs Provide no Solace as Investors Look for Guidance

Key Talking Points:

  • DAX 30 continues to lack directional as it converges towards 13,830
  • PMIs show a lack of positive sentiment in the economy, with further sentiment gauges released next week

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The DAX hasn’t really done much in the last few weeks as it continues to converge at the 13,830 mark. The lack of bullish support has left the index consolidating between the all-time -high at 14,140 and the horizontal support at 13,530 as it waits for the next risk event to offer some direction. The index still continues to be expensive at current levels and we may see sellers popping into the market as they buy the peaks in an attempt to bring it down further.

Fundamentally, investors continue to be concerned about the progress of Covid-19 through Europe, limiting the upside in equities. This morning we saw the latest PMI figures for Germany, showing that its manufacturing sector (the most important in Europe) is still expanding with a reading of 57, but this was below the analyst forecasts of 57.5. The services figure came in stronger than expected for the month of January, 46.8 vs 45.3, but the industry is contracting given the recent lockdowns.

DAX 30 Forecast: PMIs Provide no Solace as Investors Look for Guidance

Next week we’ll see a host of economic data for Germany, with the GFK consumer sentiment reading for February being the most forward-looking. The question is whether markets will care. Usuallywhen there is a forward looking figure that could possibly give guidance on spending patterns then we’d expect for people to be paying attention, but what will this figure tell us about short-term sentiment if clients cannot physically go out and spend.

We’ve also got CPI, GDP, and employment data which might spark some more interest, but again markets are not looking at what has already happened, they are looking for guidance on when some normalcy will return. And for now, the data that can shed some light on the future is the actual virus data that is reported daily, and unfortunately for Germany, it doesn’t seem to be getting better. We’ve already seen Angela Merkel extended the national lockdown until February 14th given there are more than 15,000 infections reported daily. And deaths seem to be creeping back above the 1,000 mark after a few days of more promising figures.

DAX 30 Forecast: PMIs Provide no Solace as Investors Look for Guidance

Source: DailyFX

DAX 30 Daily chart

DAX 30 Forecast: PMIs Provide no Solace as Investors Look for Guidance

So where does this leave the DAX? The index is still in a pretty strong position, and although European equities are lacking the upside momentum to keep up with risk-on sentiment, we haven’t really seen yet a strong bearish signal that price will be reversing as of now, which means the DAX continues to be expensive.

13,830 seems to be a good support area in the short-term, and we see price converging to this area, but it is not until we see price head towards 13,530 that we need to start worrying. Consolidation between this level and the all-time-high at 14,140 is likely something we’ll continue seeing in the next few weeks unless we see a significant risk event that moves markets.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 13% -9% -1%
Weekly 31% -17% -2%

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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