Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

European indices update – EA Disinflation sets the scene for next week’s ECB meeting.

In last week's update, we noted that the European economy's expansion had slowed after a patch of soft data in May.

Indicies Source: Bloomberg

The run of soft data across industrial production, purchasing managers index's (PMIs) and the German Ifo survey was made more acute by a slowdown in Chinese economic data. China is the Euro Areas' (EA) largest trading partner.

Adding a new dimension to the slowdown, the release of softer-than-expected EA inflation for May last Thursday evening. Headline inflation fell to 6.1% Year-on-Year (YoY) from 7%, driven by a decline in energy, food, alcohol, and tobacco prices. Core inflation which excludes energy, food, alcohol, and tobacco, fell to 5.3% YoY from 5.6%.

Heading into next week's European Central Bank (ECB) meeting, the interest rate market is priced for two more 25 basis point (bp) rate hikes in June and July, taking the deposit rate to 3.75%. The ECB is expected to start cutting rates in early 2024 in response to slower growth.

In the UK, while growth has been stronger than expected, so too has inflation. The UK rates market is pricing four more 25bp rate hikes from the Bank of England (BoE) for a terminal rate of 5.50% by year-end.

The contrast between ECB closing in on its terminal rate and the BoE still with much work to do helps explain why the DAX is back near all-time highs, and the Financial Times Stock Exchange (FTSE) is still 5% below its all-time highs.

DAX Technical Analysis

After a brief look below the 15,700-support level (coming from the highs in February and March and uptrend support from the October 11,829 low), the DAX rebounded at the end of last week as US Congress passed the Debt Ceiling Agreement. The rally was also supported by expectations of imminent stimulus in China and strong US non farm payrolls print.

The pullback from the mid-May 16,375 high to last-week's 15,649 low appears corrective. As such, providing the DAX holds above the 15,649 low, we look for a retest and break of short-term resistance at 16,150 with scope to the 16,375 high.

Aware that should the DAX see a sustained break of support at 15,650ish, a deeper decline is expected towards year-to-date (YTD) lows and the 200-day moving average (MA) of 14,600/500 area.

DAX Daily chart Source: TradingView.com
DAX Daily chart Source: TradingView.com

FTSE Technical Analysis

The release of stubbornly high inflation data in mid-May and expectations of another 100 bp of BoE rate hikes has weighed on the FTSE. As has a lack of tech stocks.

After briefly looking below the 200-day MA at 7527 last week, the FTSE held and bounced from uptrend support near 7450 (coming from the October 6707 low). While the FTSE remains above support at 7450, a rebound towards resistance at 7800 is likely.

Aware that should the FTSE see a sustained break of uptrend support at 7450, a deeper decline is expected towards support at 7300/7200, coming from year-to-date lows is likely.

FTSE Daily Chart Source: TradingView.com
FTSE Daily Chart Source: TradingView.com

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Take a position on indices

Deal on the world’s major stock indices today.

  • Trade the lowest Wall Street spreads on the market
  • 1-point spread on the FTSE 100 and Germany 40
  • The only provider to offer 24-hour pricing

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Tuesday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.