The recession risk significantly increases this morning as economic indicators decline to record lows and commodity prices continue to rise. This morning the EU and UK released eight Purchasing Managers Indices for different regions, which all read lower than expected. The main shock for investors was the German Manufacturing PMI Index shockingly declining to a 3-year low. In addition, commodity prices continue to rise for a fifth consecutive month, which can further pressure inflation and the cost of living. Wheat prices this morning rose by 5% in response to supply chain fears and disruptions.
The best-performing currency this morning was the US Dollar and Japanese Yen. The US Dollar Index has risen to 101.40, trading 0.32% higher than the open price. The US Dollar is increasing in value against all currencies bar the Japanese Yen. The Dollar and Yen are performing well this morning as investors' risk appetite declines, triggering a higher demand for safe haven currencies. However, despite the risk appetite changing, the stock market is performing slightly better as investors believe Central Banks may abandon hikes soon due to poor economic data. Out of the eight PMI reports, only 3 signaled economic growth, while five signaled contraction.
DAX Defies Recession Fears Amid Poor PMI Data
The DAX began the day with a decline but quickly rose in value as economic data was released. As the European Session opened and the PMI data was released, the DAX rose by 0.37%. Due to the price increase, the asset has broken out of the “symmetrical triangle” pattern, indicating a potential price increase. However, the price is now near resistance levels from the past week.
The reasoning behind the bullish price movement is the latest PMI data which mainly indicates economic contraction makes it even harder for the EU to hike interest rates. A potential “pause” or “pivot” is positive for the European stock market. However, economists still believe the EU will likely hike 0.25% later this week. If the ECB decides not to walk, the DAX can find further support. In addition to this, if the ECB hike indicates that the cycle is now at an end or close to an end, again, the DAX potential may see an increase in buyers.
The main price driver this week will be the rate decisions from the European Central Bank and the Federal Reserve. The market expects the Federal Reserve and the European Central Bank to hike 0.25%, but the main price driver may be the forward guidance from global regulators. In addition, investors will also be concentrating on Earnings from European companies—for example, Deutsche Bank on Wednesday and L’Oreal and Nestle on Thursday.
This morning’s Purchasing Managers’ Index readings can be seen below:
- French Manufacturing PMI - 44.5 (46.1 expected)
- French Services PMI - 47.4 (48.5 expected)
- German Manufacturing PMI - 38.8 (40.9 expected)
- German Manufacturing PMI - 52.0 (53.2 expected)
- UK manufacturing PMI - 45.0 (46.1 expected)
- UK Services PMI - 51.5 (53.1 expected)
DAX 30-Minute Chart on July 24th
Regarding technical analysis, the DAX is forming neither an upward nor downward trend. The asset is experiencing higher “lows”, but highs are losing momentum at the same levels. However, if the asset can break above the resistance level from the past week, more substantial “buy” indications may develop.
NASDAQ Earnings Reports and Interest Rates Set to be the Key Price Driver
Like the Dax, the NASDAQ has also risen during this morning’s futures market in response to the poorer economic data signaling a pause in rate hikes soon! The NASDAQ trades 0.33% higher than the day’s open price but still follows a downward trend. Investors will be monitoring this afternoon’s US PMI data, which will likely influence the asset over the next 24 hours. Investors will track if the data points toward one hike, two hikes and a pause. However, traders should note that tomorrow’s earnings data will be the main price driver.
Microsoft and Alphabet will release their earnings report for the past quarter tomorrow after the market close. Meta will release their quarterly earnings report on Wednesday and Amazon on Thursday. These four quarterly earnings reports are likely to shape the performance of the NASDAQ for the foreseeable future alongside interest rate guidance. Higher-than-expected earnings are deemed positive for the NASDAQ, whereas lower-than-expected profits can further fuel a decline. Technical analysts have also noted that positive earnings can allow traders to purchase at a discounted price, as the index has declined by 2.50% since July 19th.
If the NASDAQ increases above $15,597, further buy signal may arise. If the price declines below $15,402, additional sell signals can point to the continuing trend.
NASDAQ 1-Hour Chart on July 24th
Summary:
- The EU and UK released eight Purchasing Managers Index for different regions, all reading lower than expected.
- The best-performing currency this morning was the US Dollar and Japanese Yen. The US Dollar Index has risen to 101.40, trading 0.32% higher than the open price. The US Dollar is increasing in value against all currencies bar the Japanese Yen.
- The NASDAQ and DAX increase in value based on a lower possibility of higher interest rates.
- Earnings data throughout the week, as well as the “forward guidance” given by central banks, is likely to shape the price condition for the next month.