DAX Dips as Europe Wrestles with Rising Bonds and Economic Fears

Trading volumes read lower on Monday due to the US holiday. However, European and Asian sessions saw two large waves. Asian and European equities began the day strong with gains but fell after 3-hours of trading, ending the day lower. This morning, European equities such as the DAX and CAC continue lower as we approach the European Cash Market Open. The poor sentiment amongst stocks arose partially due to poor Chinese economic data, which is known as a global indicator for the current economic outlook, similar to the US. 

This morning, the Chinese Caixin Services PMI read lower than expectations falling from 54.1 to 51.8, the weakest in 9-months. On the other hand, the stock market received some positive news from Goldman Sachs’ fundamental analysts. Goldman Sachs advises the US economy is now less likely to experience a recession. In previous months, Goldman Sachs has stated there is a 20-25% chance of the US experiencing a recession due to inflation and restrictions on monetary measures. However, their analysts are lowering the recession risk to 15%. This is due to the decline in inflation, the job-worker gap and less likeliness of the Federal Reserve hiking again in 2023. However, European and US equities were trading lower before the market opened. However, investors will concentrate on how participants react after the cash session opens. 

German DAX - Rising Bonds Yields and Economic Fears Dim Outlook

The price of the German DAX saw an evident change in sentiment as the US trading session, which was closed for the day, was approaching. During the European Futures session and the cash open, the DAX rose by 0.62% but declined by 0.85%. The most decisive bearish momentum was witnessed as the sessions overlapped, and the European session was edging close to its close. The asset fell by 0.43% in the last 1-hour of the European session alone. This morning, the price opened on a negative price gap and continues to decline. The price is 0.40% lower, including the negative price gap. However, traders should note this may change once the European session opens. 

The price of the DAX fell partially due to the negative outlook within the EU and the higher possibility of hikes compared to the US. In the latest report, the Unemployment Rate in Germany rose from 5.6% to 5.7%, which matched expectations. The number of unemployed citizens rose from 2.604 million to 2.630, and the figure without seasonal factors increased from 2.617 million to 2.700. Another concern for investors is the price of Oil, which has risen to its highest level since November 2022. If the price remains above previous price ranges, potentially inflation may increase or halt its downward path. Economists deem this negative for the stock market globally. 

However, the decline was mainly due to the German Bond market which saw yields significantly rise, making bonds more attractive. German 2-year bonds are trading at 2.977%, up from 2.943% on Friday; 10-year bonds at 2.538% up from 2.483%; and 30-year bonds are trading at 2.679%, up from 2.597%. If bond yields continue to rise, the stock market may experience pressure. 

German DAX 30-Minute Chart on September 5th

The German DAX has now experienced bearish price movement during the US trading session for three consecutive days. The price is trading at its lowest since last Monday but is still 1.35% above the most recent support level. Momentum indicators continue to signal a price decline, with Moving Averages crossing over downwards and the price trading below the VWAP. If the price continues to decline below 15,761.20, indicators will continue to signal a decline. However, if the price rises above 15,819.00, indicators may signal a correction towards 15,960.60 or a retracement to 15,872.00.

Gold

The price of Gold has steadily been declining over the past 24 hours. However, investors should note that the asset is still trading within its price range. However, if the price continues to decline and breaks the 1,934.32 price range, a bearish signal may materialise if the US Dollar Index is also rising. This morning, the US Dollar Index is trading at 104.43, 0.19% higher since today’s open. If the price continues to increase during the European and US session, the price of Gold is also likely to fall. The US Dollar Index will give traders a stronger indication as it illustrates the value of the Dollar as an index and not a currency pair. 

According to the latest report from the US Commodity Futures Trading Commission, the balance of long positions is 85.064 thousand against 209.426 thousand for sellers. Last week, buyers reduced the number of contracts by 5.542 thousand, while sellers increased them by 16.018 thousand. This indicates new sales in the asset and market expectations.

XAU/USD 2-Hour Chart on September 5th  

Summary:

• European equities, including the DAX and CAC, declined over the past 24 hours, mainly within the US trading session. 
• European equities come under pressure from poor economic data, higher possibilities of rate hikes and high bond yields. German 2-year bonds are trading at 2.977%, up from 2.943% on Friday.
• Investors are concerned about the price of Oil, which has risen to its highest level since November 2022.
• Last week, Gold buyers reduced the number of contracts by 5.542 thousand, while sellers increased them by 16.018 thousand. 
• The US Dollar Index traded higher this morning by 0.19%.