European indices soar: DAX reaches new high amid election uncertainty
The DAX nears record highs despite election disruptions, while FTSE and manufacturing data show mixed signals ahead of the ECB meeting.
![DAX](http://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/news-article-image-folder/Adobe_dax_chart_26-06-2024.jpg/jcr:content/renditions/original-size.webp)
European equity markets rebound as DAX recovers
European equity markets finished higher last week, ending the month of August in positive territory. This rise rendered the sharp sell-off in early August a distant memory.
At the start of a new week, and with US equity markets closed for the Labor Day public holiday, the German DAX recovered from early losses. It consolidated near the record high it struck at the end of last week.
Political shake-up adds uncertainty to European markets
Despite this recovery, German state elections delivered wins for the far-right Alternative for Germany (AfD) and the leftist populist Sahra Wagenknecht Alliance (BSW) parties, dealing a significant blow to Chancellor Olaf Scholz's ruling coalition.
The German state election results added another layer of uncertainty to European politics at a time when France is still struggling to form a government. Reflecting this uncertainty, the yield on the German 10-year bond hit a one-month high overnight of 2.349%.
Economic downturn indicators and ECB rate cuts
The higher bund yield came despite a survey showing that Germany's manufacturing sector downturn deepened in August. The final reading of the Hamburg Commercial Bank (HCOB) Manufacturing purchasing managers' index (PMI) for August was 42.4, down from 43.2 in July. The release of German factory orders on Thursday night is expected to reinforce this downturn, falling by -1.5% in July, marking the sixth fall in seven months.
Ahead of next week's European Central Bank (ECB) interest rate meeting, the European rates market is pricing in a full 25 basis points (bp) rate cut, with a second 25 bp rate cut expected in December.
FTSE technical analysis
After peaking at the mid-May high of 8474, the Financial Times Stock Exchange (FTSE) spent the better part of two months range-trading between 8300 and 8100 before it dipped to its early August low of 7915.
We believe the dip to 7915 was part of a correction within an uptrend. However, a sustained break above the August 1st high of 8405 and last week's high of 8414 is needed to confirm that the correction is complete. This would signal a retest and break of the 8474 record high, before a move to 8600.
While the FTSE remains below the resistance level at 8405/8415, further sideways price action is possible.
FTSE daily chart
![FTSE daily chart](http://a.c-dn.net/c/content/dam/publicsites/igcom/au/images/News-and-articles/ukx309.png/jcr:content/renditions/original-size.webp)
DAX technical analysis
In the lead-up to the August sell-down, we believed the DAX had completed an Elliott Wave five-wave advance from the October low of 14,630 to the mid-May high of 18,892 and had commenced a correction. The dip to the early August low of 17,024 was viewed as part of this correction.
The subsequent rebound, initially above resistance at 18,000/18,100 and then above trend channel resistance around 18,550, confirmed the correction was complete. This opened the way for the DAX to break its all-time high of 18,892.
While we can't rule out further gains towards 19,200/19,400, we believe the current market rally is mature and nearing levels from which a pullback is likely. Therefore, we adopt a more neutral stance.
DAX daily chart
![DAX daily chart](http://a.c-dn.net/c/content/dam/publicsites/igcom/au/images/News-and-articles/dax309.png/jcr:content/renditions/original-size.webp)
- Source: TradingView. The figures stated are as of 3 September 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.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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