DAX, Oil Forecast :Two trades to watch
DAX falls with earnings in focus despite improving business morale
- German IFO business climate improves by more than expected
- Deutsche Bank rises 7% on upbeat results
- DAX buyers need a rise above 14965 to extend gains
The DAX heading lower on Wednesday, extending losses from the previous session as investors digest more earnings and despite stronger than expected German business sentiment data.
After five months of declines, the Ifo business climate index rose, reaching 86.9 in October, up from 85.8 in September and ahead of the 85.9 expected. The data suggests that German businesses are more upbeat about the outlook than they have been for some time.
The data comes after German PMI data yesterday showed that a recession in the eurozone's largest economy was likely well underway. Business activity contracted for a fourth straight month in October as the manufacturing downturn was also matched by a renewed fall in service sector activity.
Meanwhile, bank lending across the eurozone almost reached a standstill in September, according to data from the ECB. Lending to businesses expanded by just 0.2%, the lowest figure in eight years.
Earnings have been coming in thick and fast. Mega caps Alphabet and Microsoft gave a mixed performance, falling 5% and rising 3%, respectively, in after-hours trade.
In Europe, earnings have been less upbeat, although Deutsche Bank was an outlier. The bank reported a better-than-expected 8% drop in third-quarter revenue, as revenue from investment banking slump slumped, but the lender's retail and corporate divisions impressed thanks to higher interest rates. The bank has added that it intends to return more capital to shareholders than initially expected, helping the share price rise 7%.
Looking ahead, attention will be on US home sales and speeches by ECB president Christine Lagarde and Federal Reserve chair Jerome Powell. It's worth noting that U S treasury yields have ticked modestly higher but are nowhere near the 5% reached earlier in the week.
DAX forecast – technical analysis
The DAX has rebounded from 14625, the October low, but failed to rise above 14965, the weekly high, the level that buyers need to rise above in order to extend gains towards 15165 the 20 sma, negating the near-term downtrend.
Sellers will look for a break below 14625 to extend the bearish trend and create a lower low, although the long lower wick on the candle suggests that selling demand was weak at the lower level.
Oil steadies after yesterday’s declines
- Oil has fell 2% yesterday on demand concerns
- De-escalation in the Middle East has seen the risk premium on oil fall
- Oil sellers need to break below 82.80 to extend the selloff
Oil prices are holding steady after falling to a week low in the previous session on demand concerns.
Oil dropped sharply yesterday after eurozone data pointed to the bloc slipping into recession and as world leaders pushed for a cease-fire in fighting between Israel and Hamas in Gaza.
Leaders of the US and Saudi Arabia also met to discuss ways to prevent the conflict from widening to other countries in the Middle East, including major oil producer Iran. The moves towards de-escalation are helping to lower the risk premium on oil, at least for now.
Meanwhile, on the demand side, news that China, the world's largest oil importer, has approved fresh support measures for the economy is helping to support the price.
Separately, US oil stockpiles declined by 2.7 million barrels in the week ending October 20th, defying expectations of a 200K barrel increase. Gasoline inventories also dropped by 4.2 million barrels. EIA stockpile data is due later.
Attention will now turn to U.S. home data for further clues over the health of the U.S. economy and comments by Federal Reserve chair Powell.
Oil forecast – technical analysis
After running into resistance at 89.79 last week, the oil price has rebounded lower, breaking below the rising trendline, 20 sma and 50 sma. The 20 sma is crossing below the 20 sma, and the RSI is below 50, supporting further losses.
Sellers need to take out support at 82.80, yesterday’s low, to extend losses towards 80.70, the October low, and 100 sma.
Any recovery needs to rise above 83.50, the August high ahead of 86.00, the confluence of the 20 and 50 sma.
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