European markets: DAX powers to new all-time high unperturbed by US debt ceiling

Two months after the US banking crisis and unperturbed by US Debt Ceiling shenanigans, the German Stock Index, the DAX, made fresh all-time highs last week.

The move to new highs was made against easing inflation data and somewhat concerningly after a fall in Euro Area industrial production, down -4.1% MoM, the steepest drop since March 2020.

The release of European PMIs this week will again highlight the divergence between the services and manufacturing sectors and give an idea of what to expect from growth going forward. The danger is that some of the deceleration in the manufacturing sector enters parts of the services sectors, which depend on industrial activity, including transport, trade, admin, and finance.

Euro Area

For the Euro Area, the Composite PMI is expected to fall to 53.5 in May from 54.1 in April.

The Services PMI is expected to fall to 55.5 from 56.2, and Manufacturing PMI will rise marginally to 46 from 45.8 in April. There will also be interest in the release of the German Ifo tomorrow, which is expected to see the Business climate rise to 93.1 in May from 93.6 in April.

The UK anticipates a decline in the Composite PMI from 54.9 in April to 54.6 in May.

Additionally, the Service PMI is expected to decrease from 55.9 in April to 55.5 in May, while the Manufacturing PMI is projected to rise from 47.8 to 48.

Also, in the UK this week, the release of April inflation data tomorrow night is expected to see headline inflation fall to 8.2% YoY from 10.1%. Retail sales on Friday night are expected to rise by 0.3% MoM bouncing back from -0.9% in March.

DAX technical analysis

Once again, the DAX surprised to the upside, printing a fresh all-time high last week at 16,375. While we have no interest in either fighting or joining the rally at this stage, we are keeping an eye on a very important key downside area of support.

The first signs that the rally in the DAX has run its course would be a sustained break back below support at 15,700/600 (coming from the highs in February and March and uptrend support from the October 11,829 low) which would then open up a deeper pullback towards the 200-day moving average at 14,400.

Until then, allow the rally to extend towards 16,750.

DAX daily chart

FTSE technical analysis

The BoE’s twelfth consecutive rate hike earlier this month and hawkish tone saw the FTSE probe more deeply into the key 7700/7522 support zone, trading to a low of 7679. Since then, the FTSE has been confined to a 7700-7800 type range waiting for a new catalyst to show its hand.

While above support 7700/7522, the FTSE still can follow the DAX to higher ground.

However, should it see a sustained break of the 200-day moving average of 7522, it would confirm that a deeper pullback is underway and allow the FTSE to trade towards year-to-date lows 7300/7200 area.

FTSE daily chart

1. TradingView: the figures stated are as of April 23, 2023. 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.