European indices regain August losses, poised for record highs

European indices continue to climb amid rate cut optimism

European indices continued their upward trajectory overnight, extending last week's robust gains on optimism surrounding potential interest rate cuts from the European Central Bank (ECB) and the Federal Reserve (Fed).

While all eyes are on Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium, political developments in France could soon come into focus.

Macron's political maneuvering in France

French President Emmanuel Macron is set to meet with party leaders on 23 August in a bid to form a government. Macron is considering an alliance with the traditional right and segments of the centre-left, with former minister Xavier Bertrand being mentioned as a potential leader for a centrist coalition.

On the other hand, the left-wing alliance has proposed Lucie Castets, an anti-money laundering expert from Paris City Hall, as a candidate for Prime Minister. If Castets were to lead the government, it could cause significant volatility in European equity indices.

Euro Area flash PMI

Date: Thursday, 22 August at 6:00pm AEST

Last month, the Hamburg Commercial Bank (HCOB) Eurozone Composite purchasing managers’ index (PMI) dropped to 50.20 from June’s 50.90, marking its second consecutive monthly decline and the weakest reading since activity levels began rising in March.

As such, the market will closely examine the August Composite PMI to assess the trajectory of the European economy. The expectation is for the composite PMI to fall for a third month to 50.10.

EA flash composite PMI chart

FTSE technical analysis

After peaking at the mid-May high of 8474, the Financial Times Stock Exchange (FTSE) then spent the better part of two months range-trading between 8300 and 8100 before dipping to the August 7915 low.

As noted last week here, "The FTSE's ability to promptly rebound from the 7915 low and return to its former range indicates that the sell-off to the 7915 low was part of a correction within an uptrend rather than the start of a new impulsive move lower." - analysis which saw us move to a weak positive bias.

A sustained break above the 1 August high of 8405, provides further confirmation that the correction is complete at the 7915 low and that a retest and break of the 8474 record high is underway before a move to 8600. Aware that while the FTSE remains below 8405, further sideways price action is possible.

FTSE daily chart

DAX technical analysis

In last week's update here, it was noted that the DAX dip to 17,024 was part of a correction within an uptrend. "However, a sustained break above resistance at 18,000/18,100 is needed to increase confidence that the correction is complete, and that the uptrend has resumed."

The DAX has since broken above the 18,000/18,100 resistance level and is now approaching trend channel resistance at the 18,580/18,600 area. A sustained break above 18,580/18,600 would set up a retest of the July high of 18,779 and the all-time high of 18,892.

However, if the DAX remains below the 18,580/18,600 resistance, further range trading within the bullish trend channel is likely.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 20 August 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.}