European indices: DAX hits a fresh record high ahead of ECB rate decision

European equities poised for growth

European equities began the new week on a strong note as traders positioned themselves ahead of an expected European Central Bank (ECB) interest rate cut and crucial employment and inflation data in the United Kingdom (UK).

In the UK, the rally in the FTSE 100 gained momentum during afternoon trading, recovering from last week’s decline. Markets weighed the latest corporate and political developments amidst economic uncertainty.

Investor sentiment and market outlook

Investor sentiment improved following Prime Minister Starmer’s comments that concerns about a capital gains tax hike were overdone.

Future gains for the FTSE 100 will depend on employment data, which is due tonight, and the September consumer price index (CPI), due on Wednesday. Currently, expectations are for the unemployment rate to remain stable at 4.1%. Core inflation is anticipated to rise by 3.4% year-on-year (YoY) in September, down from 3.6% the previous month.

European Central Bank rate expectations

Elsewhere in Europe, investors are well set for a third ECB rate cut this week, with the DAX 40 reaching a fresh record high overnight. As a 25 basis points (bp) rate cut is already factored in, attention will pivot to ECB President Christine Lagarde's guidance on future rate adjustments.

ECB interest rate decision

Date: Thursday, 17 October 11.15pm AEDT

In its meeting last September, the ECB continued to lower rates, implementing a 25 bp cut to its key deposit rate facility, bringing it to 3.5%. This move was anticipated, following a similar action in June after a hold in July. ECB President Lagarde indicated a continuation of the ECB’s data-dependent and “meeting by meeting” approach, tempering expectations of another cut at the upcoming meeting in October.

However, recent weak growth data and strong disinflationary momentum underscored the need for further monetary policy easing. The Euro Area (EA) rates market is pricing in a 100% chance of a 25 bp ECB rate cut at next week’s meeting. Another 25 bp cut is expected for the ECB’s December meeting, which would see the deposit rate close the year at 3%.

ECB deposit rate

FTSE technical analysis insights

After a strong rally to a mid-May high of 8474, the FTSE 100 has spent five months consolidating, mostly between support at 8100 and resistance at 8400.

A decisive break above the downtrend resistance at 8350/60, and subsequently above resistance at 8400/20 from August highs, is needed to confirm the correction's completion. This would signal the resumption of the uptrend towards 8600.

While the FTSE 100 remains below resistance at 8400/20, further sideways price action is possible. Recent lows around the 8170 area and the 200-day moving average of 8040 are set to offer important support if tested.

FTSE daily chart

DAX technical analysis insights

In late September, the DAX broke above resistance at 19,000, setting the stage for breaking 19,500 overnight, in line with our last European indices update in mid-September.

“A sustained break above 19,000 would confirm the correction is complete, and the uptrend has resumed towards 19,500.”

From here, provided the DAX remains above support at 19,000/18,900, we anticipate gains towards the resistance level of 20,000.

Be aware, if there is a sustained break of support at 19,000/18,900, it would signal a deeper pullback towards 18,500, with a potential move to the 200-day moving average at 18,086.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 15 October 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.}