Support for delaying rate cuts would likely affect rate-sensitive DAX-listed stocks, while hints of further rate cuts could lift sentiment.
Beyond the minutes, trade developments and ECB commentary will continue to influence DAX trends.
Wall Street Extends Gains as Fed Rate Cut Bets Rocket
US markets posted mixed performances on July 2 as investors considered trade developments and labor market data. The Dow slipped 0.01%, while the Nasdaq Composite Index and the S&P 500 gained 0.94% and 0.47%, respectively.
The ADP reported a 33k drop in private employment in June, reversing a 29k rise in May. Wednesday’s data raised expectations of Fed easing, boosting demand for risk assets such as the DAX.
According to the CME FedWatch Tool, the chances of a September Fed rate cut rose from 91.7% on July 1 to 96% on July 2.
US Jobs Report to Spotlight the Fed
Later in the Thursday session, the crucial US Jobs Report will influence the Fed’s policy outlook and risk sentiment. Economists forecast a 110k increase in nonfarm payrolls in June after rising 139k in May. Additionally, economists expect average hourly earnings to rise 3.9% year-on-year, mirroring May’s increase and a 4.3% unemployment rate, up from 4.2% in May.
Rising unemployment, softer wage growth, and a lower nonfarm payroll reading could fuel bets on a July Fed rate cut. A more dovish Fed rate path may lift demand for equities. Conversely, higher wages, a steady unemployment rate, and stronger-than-expected nonfarm payrolls may signal a less dovish Fed stance, potentially testing risk sentiment.
While labor market data will be crucial, services sector PMI numbers also need consideration. Economists forecast the ISM Services PMI to rise from 49.9 in May to 50.5 in June. A move above the 50 neutral level would ease recession fears. However, a lower print may revive recessionary risks, impacting risk assets.
Notably, rising recession risks may overshadow increasing expectations of a Fed rate cut.
Near-Term Outlook
The DAX’s trajectory hinges on US-EU trade headlines, US economic data, and central bank signals.
Bearish Scenario: Stalled US-EU trade talks, strong US Jobs Report, rising US recession risks, or hawkish central bank guidance. Under these scenarios, the DAX could drop toward 23,500, exposing the 50-day EMA.
Bullish Scenario: Progress toward a US-EU trade deal, softer US labor market data, easing recession risks, and dovish central bank signals may drive the DAX toward 24,000.
DAX Technical Indicators
Daily Chart
Despite this week’s pullback, the DAX trades above the 50-day and 200-day Exponential Moving Averages (EMA), indicating a bullish bias.
A breakout from 24,000 could pave the way toward 24,150. Sustained upward momentum could bring the June 5 high of 24,479 into play.
On the downside, a break below 23,500 and the 50-day EMA may enable the bears to target the crucial 23,000 support level.
The 14-day Relative Strength Index (RSI), at 54.59, indicates the DAX could move to 24,479 before entering overbought territory (RSI > 70).