European indices: DAX shrugs off French political turmoil to hit record highs

DAX achieves record highs despite French turmoil

The German DAX 40 reached a new record high, while the FTSE 100 hit a six-week peak overnight as investors absorbed the latest economic data despite ongoing political turmoil in France.

The gains followed early weakness after the Eurozone manufacturing purchasing managers' index (PMI) fell to a two-month low of 45.2 in November. This indicated significant contractions in production, new orders, purchasing, and inventories, with the employment sub-index experiencing its steepest decline since August 2020.

However, French Prime Minister Michel Barnier's budget concessions to Marine Le Pen, leader of the far-right National Rally (RN) party, aimed at preventing a no-confidence vote, helped soothe market concerns and lifted European stocks from earlier lows.

ECB rate decisions and economic outlook

Looking ahead, five European Central Bank (ECB) officials, including President Lagarde on 5 December, are scheduled to speak before next week's ECB interest rate meeting. A 25 basis point (bp) cut is fully anticipated for the 12 December meeting, with a cumulative 164 bp of cuts expected by the end of 2025.

These ECB rate cuts are expected to cushion European growth if the Trump administration implements tariffs on Europe and reduces its support for the conflict in Ukraine.

ECB interest rate chart

FTSE technical analysis

After a strong rally to the mid-May high of 8474, the FTSE has spent the past six months consolidating, mostly above support at 8000 and below a band of resistance at 8400 – 8420.

A sustained break above the trend line resistance at 8370, which comes from the highs of May, August, and October, and then above a band of horizontal resistance at 8400 – 8420, is needed to confirm that the correction in the FTSE is complete and that the uptrend has resumed towards 8600.

While the FTSE remains below resistance at 8400 – 8420, further sideways price action is possible, including a retest of the support coming from the 200-day moving average of 8145 and the mid-November 7995 low.

FTSE daily chart

DAX technical analysis

In late September, the DAX broke above resistance at 19,000 before hitting a high of 19,674 in mid-October. The retracement from the 19,674 high was corrective, and after bottoming at the 18,812 low, the DAX surged higher, just short of the key 20,000 level overnight.

Given the bullish seasonality and expectations of ECB rate cuts, we expect the gains to extend in the weeks ahead towards 20,500. A sustained break of support at 18,800 would be the first indication that the DAX has topped and that a deeper pullback is underway.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 3 December 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.}