FTSE soars to yearly peak as BoE's dovish turn fuels market optimism

Last week, the FTSE reached a 12-month peak, breaking free from its long-standing range following a dovish surprise at the Bank of England (BoE) meeting.

While the BoE kept rates on hold at 5.25% as widely expected, a dovish pivot was provided as two BoE members, Mann and Haskel, who had voted for hikes in February, removed their hawkish dissent.

The dovish pivot implies the bar to BoE rate cuts is much lower than previously thought and has resulted in the interest rate market pulling forward, the expected timing of the BoE's first rate cut to June (17 of 25bp priced) from August. There is currently a total of 72 bp of cuts priced for 2024, up from 66 pre-last week's BoE meeting.

With a light data calendar this week in the UK and Europe, the focus will be on the release of German consumer confidence data this evening.

What is expected from the GFK Consumer Confidence survey (Tuesday, 26 March at 6pm)

Heading into March, German Consumer Confidence increased to -29 from an eleven-month low of -29.6. Expectations of ECB rate cuts are starting to filter through into some business sentiment surveys, such as the ZEW, which recently jumped to its highest level in two years.

This impact, along with slowing inflation and rising household incomes, should also be observed in upcoming consumer confidence surveys. However as can be viewed on the chart below, a good deal of improvement is required before consumer confidence returns to positive territory.

GFK consumer confidence chart

FTSE technical analysis

After many weeks of discussing the potential for the FTSE to break higher, it finally hit the after-burners last week, surging 2.63% to a 12-month high of 7961.

From here, we expect dip buyers to be active ahead of support, formerly resistance, in the 7760/20 area. We are looking for the FTSE to test and break its all-time high of 8047 before a push towards 8250.

Aware that if the FTSE were to lose support at 7760/20 on a sustained basis, it would warn that the break higher has failed and likely see a retest of the 200-day moving average at 7550.

FTSE daily chart

DAX technical analysis

The DAX has had a memorable month, gaining 4.85% in March. This makes it a candidate for some month-end/quarter-end rebalancing selling flows this week. While there are many moving parts to rebalancing, typically, it involves selling the best-performing stock markets, which for March would be Korea, Germany, Japan, and the US, and buying the laggards.

Weakness should be well supported initially at 18,000/17,900. However, the more important area of support is at 17,650, coming from the October 14,630 low. Providing this level holds, the uptrend remains intact and with-it expectations of a push towards 18,500.

DAX daily chart

• ^{Source: TradingView. The figures stated are as of 26 March 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.}