European equity indices: will UK inflation data help the FTSE reach a record high, or did it miss its chance?

2024's first quarter sees European Indexes soaring

During the first quarter of 2024, several global equity indices, including the German DAX and the French CAC40, made fresh record highs.

The one big-name stock index from within that region that has thus far failed to print a new high in 2024 is the UK stock market, the FTSE, which fell less than three points short of trading above its February 2023 all-time high of 8047 last week.

While the window of opportunity appears to be closing as global risk sentiment takes a turn for the worse, a softer UK inflation reading this week may yet provide the FTSE with another shot at a record high.

What is expected from UK inflation data for March

Date: Wednesday, 17 April at 4pm AEST

In February, the headline inflation rate in the UK eased to 3.4% YoY from 4.0% previously – below market expectations of 3.5%. It was the lowest rate since September 2021. The annual core inflation rate fell to 4.5% from 5.1% previously, beneath market expectations of 4.6%.

The softer inflation data from February was released the day before the BoE's March Board meeting when the BoE shifted to a neutral stance, viewed as the first step towards a rate cut. The BoE said it will "continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation".

The initial response in the rates market was to price a cumulative 75 basis points (bp) of BoE rate cuts this year. However, following the hotter-than-expected US CPI data last week, the rates market is pricing in just 50 basis points of cuts, with the probability of a first 25 basis point cut from the BoE, 85% priced for August.

For March, the annual rate of headline inflation is expected to fall to 3.1% from 3.4%, and the annual rate of core inflation is expected to ease to 4.1% from 4.5%, which may be just the tonic the FTSE needs for another push to the topside.

UK inflation chart

DAX technical analysis

A second successive week of weakness in the DAX took it back to uptrend support at 18,050, drawn from the 14 October 14,666 low. We view the upcoming price action around the 18,050/18,000 support level as pivotal to what comes next.

If the DAX were to hold this support area, we would expect a retest and break of the 18,839 high. However, if the DAX sees a sustained break below support at 18,050/18,000, we expect to see a deeper decline commence, initially towards 17,600 with scope towards 17,200.

DAX daily chart

FTSE technical analysis

Last week, the FTSE fell less than three points short of its all-time high of 8047. While it is possible that last week's high of 8044 became a double top of sorts, we remain open to the idea that the FTSE can still test and break its all-time high of 8047 before a push towards 8250.

However, if the FTSE fails to break above resistance at 8047, then loses short-term support at around 7875 and falls below medium-term support at 7760/20, it will confirm that the FTSE has formed a double top. This would likely lead to a retest of the 200-day moving average at 7580.

FTSE daily chart

• ^{Source TradingView. The figures stated are as of 16 April 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}