DAX soars amidst ECB inflation concerns, FTSE stagnates: a tale of two stock markets

While the German stock market, the DAX, has been making headlines, the UK stock market, the FTSE, has been listless in comparison ahead of this week's European Central Bank (ECB) and Bank of England (BoE) meetings.

The DAX's upswing is fuelled by a downside surprise in inflation. Anticipated ECB actions include revising down 2024 inflation projections, recognising progress toward forecasted levels, and setting the stage for potential rate cuts starting March next year.

The BoE is also expected to keep its official cash rate on hold. However, with inflation still too high, it is expected to push back against expectations of rate cuts during H1 2024. It will note that monetary policy will likely remain "restrictive for an extended period of time" and warn that further tightening of policy is possible.

As noted last week, the contrasting inflation and interest rate outlook between the Eurozone and the UK helps to explain why the DAX gained 9.41% in November, while the FTSE gained only 1.8% during the same time.

DAX technical analysis

Like its US counterpart, the S&P 500, the DAX has now made fresh year-to-date highs.

As viewed via the RSI indicator, the DAX is at extremely overbought levels; and while we remain bullish into year-end, we would not contemplate opening fresh longs at these levels. Instead, we would prefer to wait for a corrective pullback and signs of basing to look to open longs.

Aware that a sustained break below the support of the 200-day moving average at 15,806 would warn that the rally has run its course and that a deeper pullback is underway.

DAX daily chart

FTSE technical analysis

The FTSE remains encapsulated in a range above horizontal support at 7200 and below downtrend resistance at 7600ish (from the February 8047 high), as well as the 200-day moving average at 7572.

If the FTSE can see a sustained break above resistance at 7572/7600ish, we think the FTSE could finally play some catch-up to the DAX, and other global peers. The initial expectation would be for a retest of the September 7746 high, which, if it breaks, would open up a test of the April 7936 high.

Aware that until this occurs, further range trading is likely, including a possible retest of range lows at 7200.

FTSE daily chart

• _{Source TradingView. The figures stated are as of 12 December 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.}