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“A paradigm shift unfolding in Europe as both houses of German parliament vote to unlock large deficit spending – ending the era of German fiscal restraint, which has defined EU macro governance. Germany is now stepping up as a source of demand and European public goods. Historic.”
While domestic reforms offered long-term optimism, global uncertainties remained front and center.
Germany’s Private Sector in Focus
On Monday, March 24, private sector PMIs will influence sentiment toward the economy and the ECB rate path. Economists forecast Germany’s HCOB Manufacturing PMI to rise from 46.5 in February to 47.7 in March. Importantly, the HCOB Services PMI is expected to increase from 51.1 to 51.4 in March.
A milder contraction in manufacturing and stronger services activity could lift risk appetite.
However, the devil will be in the details. Labor market and price trends may show the early effects of Trump’s tariff policies. Rising prices could temper ECB rate cut bets, potentially pressuring German stocks. Weaker labor market conditions may dampen optimism over fiscal reforms.
Conversely, weaker-than-expected PMI figures may fuel ECB rate cut bets, supporting rate-sensitive stocks.
US Markets Advance on Tariff Relief
US equity markets reversed early losses on Friday, March 21, to end the week on a high. President Trump eased tariff concerns, stating that there will be ‘flexibility’ on reciprocal tariffs. The shift from a hard-line stance against countries imposing levies on US goods boosted demand for risk assets.
The Nasdaq Composite Index advanced 0.52%, while the Dow and the S&P 500 posted 0.08% gains.
Key Market Focus: US Services PMI Data and Tariffs
Upcoming services PMI data will give insights into the US inflation and labor market trends. Economists forecast the S&P Global Services PMI will rise from 51.0 in February to 51.2 in March.
A higher-than-expected PMI would ease recession fears, boosting demand for DAX-listed stocks. However, rising prices and tighter labor market conditions may temper June Fed rate cut bets, given that services inflation trends are crucial for underlying inflation.
Conversely, an unexpected drop below 50 would likely retrigger recession fears, fueling a flight to safety.
Traders should also monitor FOMC commentary on the economic impact of tariffs on inflation and further tariff developments.
Near-Term Outlook: Key Drivers
The DAX’s trajectory hinges on several key factors: PMI data, US-EU and US-China trade developments, and signals from the Fed.
Potential DAX Scenarios:
- Bullish Case: If trade tensions ease, private sector PMIs rise, and central banks support near-term rate cuts, the DAX could retarget its record high of 23,476.
- Bearish Case: If US-EU trade tensions escalate, PMI data weakens, or central banks adopt a more hawkish stance, the DAX could slide toward 22,500.
As of Monday morning, the DAX futures were up 89 points, while the Nasdaq 100 mini jumped 145 points, signaling a bullish start to the week.
DAX Technical Indicators
Daily Chart:
Despite a three-day losing streak, the DAX remains above the 50-day and 200-day Exponential Moving Averages (EMAs), suggesting strong bullish momentum. However, tariff and fiscal-driven volatility present potential short-term downside risks.
- Upside Target: A breakout above 23,000 could signal a move to 23,350. A return to 23,350 could bring Tuesday’s record high of 23,476 into sight.
- Downside risk: A DAX drop below 22,750 may test 22,500. A fall through 22,500 would bring the 50-day EMA into play.
With the RSI at 55.70, the DAX remains below overbought levels (above 70), signaling room for a climb above its all-time high of 23,476 toward 23,750.
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