DAX: Sharp Decline in Industrial Production Puts Pressure on Stocks

Industrial Production MoM declined by 2.4% compared to analysts’ forecasts of a drop of 0.3%.

A decline in industrial activity was expected but the data released showed a much stronger drop in the economic activity of the sector than expected. The data adds to string of poor data from Germany.

GDP Growth, Manufacturing PMI, and Services PMI have all printed consecutive drops over the past 3 months. Economic contraction in Europe’s largest economy is possibly due also to global economic conditions.

While the economies of peers, such as Italy and France are expanding, Germany finds itself struggling with a decline in demand for its exports from its largest trading partner in China.

At the same time, the market is expecting further monetary loosening by the ECB, which will be helped by action from the Fed. While the market waits for ECB policy, stocks are following the global trend lower.

All eyes are on today’s Non-Farm Payrolls from the U.S. which Analysts expect will show a rise in jobs to 160k from last month’s 114k. An acute increase in jobs may be seen as dampening the chances of a Fed cut by 50bp.

The market has mostly priced in a 25 bp cut, while the chances of a 50 bp would be a boost for the stock market globally. A lower number than expected for NFP may give stocks a boost this afternoon.

Technical View

The day chart above for the DAX shows a market that is technically in a bullish trend. The market has retraced towards the cloud but is still above it.

The failure of the market to rally from the cloud and push past the previous all-time high of 18,913 (red line) has led way to a correction. The current candle has found support from the neckline of the head-and-shoulders pattern that gave way to the drop of 17,016 (grey line).

Should that level break, the next support is at the lower part of the cloud, which coincides with the previous support level of 17,939 (green line). To the upside, we would need to see a break above the ATH reached on September 3, of 19,000 to consolidate a bullish trend.