Asian Open ADP Employment Misses the Mark ISM Data mixed

 

You would have thought that on the back of a stronger showing from the Eurozone GDP that the DAX and other European indices would have been rallying today. Well, that hasn’t been quite the case as traders digested a deluge of mixed earnings while the handover from China was again not great with the markets there falling. Stronger results from Alphabet kept US index futures supported, ahead of key US data and more tech earnings today. But AMD’s weaker results meant risk appetite was overall weaker. A much stronger ADP private payrolls report (233K vs. 110K) further boosted talks of a more cautious approach from the Fed, pushing yields and the dollar higher. Meanwhile, a technical breakdown means the DAX forecast has turned somewhat bearish in the near-term outlook, with investors also wary of the impact of a potential Trump win over European and Chinese assets amid increased tariffs. 

 

 

Mixed earnings fail to lift mood

 

In Europe, companies such as GSK, Nexans and Amundi all saw their shares drop following their results – GSK reported lower-than-expected sales for two of its main vaccines; Nexans missed its revenue forecast, and Amundi’s net inflows fell short of expectations. Shares in AML, which have been subdued after that big drop on 15^th October, fell further following the AMD’s weaker results. On the flip side, Puig Brands surged with a strong revenue jump, UBS Group’s earnings beat to send its shares to a 16-year high, and Standard Chartered boosted returns to shareholders.

 

Eurozone economy surprises in Q3 but outlook remains weak

 

On the data front, the euro-area economy grew by 0.4% which was more than 0.2% expected last quarter, with Germany unexpectedly dodging recession where output expanded by 0.2%. Spain again outperformed with a growth of 0.8% with France’s growth accelerating by 0.4%. However, Italy was the weak point where output was flat.

 

However, it is likely that one-off factors such as the Olympics in Paris boosted growth in France, while Ireland added 0.1 percentage point to Eurozone’s growth. Without these factors, growth would have been not so strong.

 

In fact, recent forward-looking surveys have been far from great, suggesting that the eurozone economy remained sluggish at the start of Q4. Still, it does alleviate some concerns from the ECB who were probably discussing whether to increase the pace of the rate cuts to 50 basis point in December. But in light of today’s data, a more standard 25 bps cut should be expected. All told, today’s growth data have had minimal implications for the DAX forecast.

 

 

Technical DAX forecast: key levels to watch

 

The German DAX index has been doing quite well until recently, showing higher highs and higher lows. But the recent bullish momentum has been lost in recent days and now it is reversing a little to put the technical DAX forecast on a bearish watch.

 

Source: TradingView.com

 

In the last few days, the index had repeatedly bounced off its lows as it found support along a key trend line of a wedge pattern that had been in place since August. This trend line was essentially the line in the sand in the short term, and now that it has broken down, we have seen some downside follow-through.

 

If we now see a daily close below it, the selling pressure could kick in, likely pushing the DAX to at least 19,200, which is the next nearest support level. But we could see an even deeper correction now towards the 18,900-19,000 zone (blue-shaded zone), where it hit strong resistance in May and a couple of times in September before breaking out.

 

Now, keep in mind, this area has already been tested, so a break below here could signal a shift to the downside, especially with current global conditions—a weakening Chinese economy, mixed earnings from major companies, and the US presidential election—all primed to add some volatility.

 

But let’s not get ahead of ourselves; the first bearish cue to watch for is a break below this bullish trend line on the DAX on a daily closing basis.

 

In terms of resistance levels to watch, well the area between 19,400 to 19,460 is now the most important zone to watch. Having served as support, this area could turn into resistance if we get a retest from below.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R