European indices update: August blues continue for FTSE and DAX

Historical challenges for FTSE and DAX

Over the past decade, August has statistically been the worst-performing month of the year for the FTSE and the second worst-performing month of the year for the DAX. This August has been no exception. With just three trading days left, the FTSE is down 4.62%, and the DAX is down 4.11% month-to-date.

September is also statistically a down month, but the good news is that it precedes a run of four positive months between October and January.

The week ahead

Away from the seasonals, the economic data in Europe has been decelerating since May in response to higher interest rates and partially due to its exposure to China. This week brings the release of Euro Zone consumer price indexes (CPIs) and labour market data, which will go a long way to settling what the European Central Bank (ECB) will do with rates at their September 14 meeting.

Following comments overnight from ECB governing council member Robert Holzmann, who argued in favour of “pushing on with rate increases without taking a pause”, the rates market is about 50% priced for a 25bp rate hike to the deposit rate to 4% in September.

What is expected from Euro Zone inflation?

Headline inflation is expected to fall to 5.1% year-on-year (YoY) in August from 5.3% in July despite higher fuel prices. The fall will largely be due to food inflation and non-energy industrial goods declines.

Core inflation is expected to stay sticky, slowing marginally to 5.3% YoY in August from 5.5% in July. However, better months are ahead, and due to an expected decline in services inflation, August should be the last month where core inflation prints above 5%.

DAX technical analysis

Our technical view of the DAX remains unchanged from last week's update.

While the DAX holds above a band of support 15,650/450 coming from recent lows and the 200-day moving average, allow for a rebound back towards 16,000 and possibly to range highs, 16,400/16,600 area.

However, if the DAX were to see a sustained break of support at 15,650/450, there is very little in the way of downside support until the lows from March 2023, 14,700/600 area.

DAX daily chart

FTSE technical analysis

While the FTSE holds above support at 7200ish, allow for a rebound back towards the 200-day moving average at 7625, with scope to the highs of July 7722 area. However, if the FTSE were to see a sustained break of support at 7200, there is scope for it to extend its decline towards 7000 before a retest of the 2022 lows 6800/6700 area.

FTSE daily chart

• _{TradingView: the figures stated are as of August 29, 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.}