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The German Manufacturing PMI increased from 38.8 to 39.1, unchanged from the flash survey. According to the final survey, new orders declined sharply, with employment falling for the second month. Input prices fell at the second most marked pace in 14 years. Factory gate prices declined for a third month.
While the manufacturing sector contracted at a modestly less marked pace, weak demand will remain a concern.
China Caixin Manufacturing PMI Survey Sends Mixed Signals
On Friday, the all-important China Caixin Manufacturing PMI unexpectedly rebounded in August. Domestic demand fueled sector growth, limiting the impact on the global equity markets.
However, an increase in new orders from overseas would change the weak global demand narrative.
US Jobs Report Eases Fed Rate Hike Bets
Easing bets on further Fed interest rate hikes failed to boost buyer appetite. The US Jobs Report revealed early cracks in the US labor market, pegging back hawkish Fed bets.
According to the CME FedWatch Tool, the chances of the Fed delivering a September rate hike eased from 20.0% to 7.0% over the week. Notably, the probability of Fed rate hikes in November and December also declined. Nonetheless, the less hawkish Fed bets were of no consolation, with the ECB on track to push interest rates higher.
The weaker-than-expected US Jobs Report failed to fuel a US equity market rally. The S&P 500 and Dow gained 0.18% and 0.32%, respectively. However, the NASDAQ Composite Index bucked the trend, falling by 0.02%.
The Friday Market Movers
Auto stocks sent the DAX into negative territory. UBS downgraded Volkswagen and Renault, leading to a broad-based sector-wide pullback. Volkswagen was the worst performer on the DAX, sliding 4.18%. However, Porsche (-2.16%), Mercedes Benz Group (-2.49%), Continental (-1.87%), and BMW (-3.06%) were also at the bottom of the table.
Today’s Session
German trade data for July will kick-start the week. Following another set of disappointing economic indicators, the recession bells are ringing. While the headline figure will influence, investors should consider the import and export numbers. A slide in imports and exports would weigh on buyer appetite.
Economists forecast the German trade surplus to narrow from €18.7 billion to €18.0 billion in July.
Despite the doom and gloom surrounding the German economy, weak numbers are unlikely to derail ECB policy goals.
Later in the session, ECB President Christine Lagarde and Chief Economist Philip Lane will move the dial. With the markets expecting a September move, forward guidance beyond September would draw interest.
The DAX Futures was up 35 points this morning. The news of more measures from Beijing to support the property sector and a Country Garden debt deal fueled an Asian equity market rally.
Fed Chatter in Focus on the US Labor Day Holiday
After the weaker-than-expected US labor market numbers, Fed commentary needs consideration today.
The markets expect the Fed to hold rates unchanged over the remainder of the year. Hawkish comments would catch investors by surprise and test buyer appetite.
No FOMC members are on the calendar to speak today, leaving chatter with the media to move the dial.
Short-Term Forecast: Hawkish ECB Remains a Headwind
Hawkish ECB commentary continues to spell rate hikes beyond September. The ECB policy goals overshadow bets on the Fed ending its monetary policy tightening cycle. However, hawkish Fed comments could reignite Fed rate hike bets and give the DAX bulls more reason to fret.
DAX Technical Indicators
Daily Chart
The DAX sat below the 50-day EMA after the Friday pullback. The fall through the 50-day EMA brings the trend line and 15,663 support into view. Hawkish ECB commentary and weaker-than-expected trade data would sink the DAX. However, support at 15,663 is confluent with the trend line, suggesting strong buyer support at 15,660.
An unexpected jump in German exports and a rise in imports would give the bulls a run at the 16,007 resistance level. ECB President Lagarde and Chief Economist Lane must deliver DAX-friendly comments to support a breakout.
Considering the 14-Daily RSI at 49.15, the DAX has room to fall before hitting oversold territory.
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