DAX extends pullback as investor nervousness returns

The DAX is expected to open slightly lower today, initially moving further away from the 26,000-point mark.

At least during its first two trading sessions, September is living up to its reputation as statistically the weakest month for equities. The combination of rising oil prices, renewed inflation concerns and fears of further central bank rate hikes is weighing on equities both directly and indirectly. Recent economic indicators have pointed to a resilient US economy, while Europe’s tentative recovery had begun to show some early signs of momentum. Asia, meanwhile, continues to benefit from exceptionally strong demand for semiconductor technology.

Faced with this three-pronged risk scenario, however, investors are retreating to the sidelines and leaving the field increasingly to sellers. The concern is that negative price momentum could now become established and be amplified further by systematic and algorithmic trading strategies. Rising US Treasury yields are acting as an additional catalyst, making equity exposure increasingly less attractive on a relative basis.

Nervousness is building ahead of the European Central Bank meeting next Thursday and the Federal Reserve’s rate decision the following week. Before then, however, several important economic releases could provide fresh direction. Today’s focus will be on the ADP employment report and US factory orders, followed by the official US labour market report on Friday.

From a technical perspective, the DAX now needs to reclaim the 26,000-point mark, although the current combination of risks is likely to make that an uphill battle. For today, the index is expected to trade initially within a range of 25,700 to 25,950 points.