DAX still searching for direction as AI euphoria meets falling energy prices

Positive sentiment on Wall Street is likely to support the DAX at the start of today’s session. Following a strong start to the week in the US, the positive momentum also spilled over into Asian markets. Technology and semiconductor stocks were particularly sought after. Investors still appear to have an insatiable appetite for the AI sector, following buyers in New York, where Meta Platforms and AMD in particular fuelled enthusiasm yesterday with double-digit gains.

At the same time, further support is coming from the continued decline in energy prices. Hopes of a diplomatic de-escalation in the Iran war are taking pressure off the oil market and, in turn, inflation expectations. The equation for investors is currently straightforward: higher energy prices fuel inflation, higher inflation forces central banks to act, and higher interest rates put pressure on bond markets. With government debt levels already elevated, this mechanism is currently acting as an additional amplifier for bond yields.

Equity markets are therefore welcoming every further decline in energy prices. The longer oil and gas prices continue to fall, the greater the hope that central banks will not have to tighten monetary policy even more aggressively in their fight against inflation. Falling energy prices are therefore not only providing relief for companies and consumers, but are also acting as a calming influence on bond markets.

Alongside the meeting between the US and China, attention today will turn to the ADP employment report and the Richmond Fed index. Investors are hoping to see continued resilience in the US economy and a stable labour market. As long as the economy remains strong enough, equity markets should find it easier to absorb further Federal Reserve rate hikes. From a technical perspective, the DAX is expected to trade within a range of 25,450 to 25,700 points today.