European equity indices: indices wobble ahead of UK inflation and ECB meeting

European indices started the new week on the back foot as the focus switched from the drama of the French elections and the final of Euro 2024 to company earnings, economic data and the European Central Bank's (ECB) upcoming interest rate meeting.

French election uncertainty

Before we move on, the outcome of the second round of the French election remains undecided. The most likely scenario remains a hung government, while a grand coalition of moderate parties on either side of the political centre also remains possible. While the ongoing uncertainty may weigh on French growth in the coming quarters, it has removed the tail risks of a more extreme majority outcome.

Impact of Chinese growth data

As we have noted in past articles, the European economy and European equity markets are leveraged to the trajectory of the Chinese economy. Yesterday's disappointing Chinese growth data weighed on investor sentiment in Europe, compounded by the share price of luxury fashion group Burberry diving 16.1% after a dire trading update.

Attention now switches to tomorrow night's UK inflation update, which is expected to see the core measure remain at 3.5% year-on-year (YoY), and Thursday night's ECB meeting, previewed below.

ECB interest rate meeting

Date: Thursday, 18 July at 10.45pm AEST

At its last meeting in June, the ECB delivered on a pre-signalled interest rate cut, reducing all its policy rates by 25 basis points (bp).

The rate cut wasn't without controversy after core inflation reaccelerated in May to 2.9% YoY from 2.7%, and wages ticked up in Q1. The decision to cut rates was further clouded by the staff forecasts, which revised up estimates for inflation and wage growth in 2024 and 2025.

The tone of the communiqué was cautious and non-committal on the future path of rate cuts. ECB President Lagarde indicated that future decisions will be data-dependent and that there will be further bumps along the inflation road towards 2%.

As such, the ECB is expected to keep its monetary policy settings unchanged this week. The most likely window for follow-up cuts is September and December.

ECB deposit rate chart

FTSE technical analysis

The rebound in the Financial Times Stock Exchange (FTSE) from support at 8100 has been tepid. In our opinion, the longer it spends trading in a range between 8300 and 8100, the higher the chances are of another leg lower.

W remain neutral, a sustained break below horizontal and uptrend support at 8100/8000 would signal that a deeper decline towards 7800 is underway.

FTSE daily chart

DAX technical analysis

The view remains that the DAX completed a five-wave rally from the October 14,630 low to the mid-May 18,892 high. Within Elliott Wave theory, a Wave V is usually the final leg of an impulse move before a correction unfolds.

We suspect the DAX is tracing out the second leg (Wave B) of a three-wave 'ABC' correction. Once Wave B is complete, we expect the DAX to commence another leg lower (Wave C) towards support at 17,700/600, coming from Wave equality and the mid-April 17,626 low.

Pending signs of basing in the 17,700/600 area, we will be looking to be a buyer in anticipation of the uptrend resuming.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 16 July 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.}