Market update: a mixed night for European indices, FTSE gained, DAX declined

It was a mixed night for benchmark European Stock indices with the DAX (-0.39%) losing ground after hotter-than-expected German inflation reignited ECB rate hike fears. In contrast, the FTSE (0.49%) benefited from the release of stronger-than-expected Chinese PMI data yesterday, which supported the big miners.

What happened in Germany?

Mirroring the trend seen earlier in the week in Spain and France, German harmonised inflation rose in January to 9.3% YoY, above market expectations for a 9% rise. It was the first rise in four months.

With inflation in the Euro Area proving stickier than expected, the swaps market is now pricing in +150bps of further rate hikes by year-end, which implies the deposit rate will climb from 2.50% to 4%.

This is a remarkable repricing considering that just 12 months ago after Russia invaded Ukraine, there were doubts about whether the ECB would be able to raise rates.

What happened in the UK?

Yesterday’s release of China’s February official PMIs and Caixin manufacturing PMI all surprised to the upside and in doing so, breathed new life into the China re-opening trade that flagged in February.

• Manufacturing PMI at 52.6 vs 50.6 exp
• Non-manufacturing PMI at 56.3 vs 54.9 exp
• Caixin manufacturing PMI at 51.6 vs 50.7 exp.

The big miners, including Glencore, Anglo-American, Antofagasta and Rio Tinto, all made gains, with a further boost for the FTSE coming from BoE Governor Andrew Bailey who said nothing had been decided in terms of future rate hikes.

DAX technical analysis

After its 32% rally from the October lows, the DAX has recently corrected back to the uptrend support from the October 11,829 low, currently around 15,250/200.

Based on the hawkish repricing in the European interest rate markets as outlined above, we expect the DAX to break the uptrend support and head towards the next level of support at 15,000/14800.

If the DAX were to hold the 15,250/200 support, it would keep the short-term uptrend intact and likely set the stage for a retest of the February 15,705 high.

DAX daily chart

FTSE technical analysis

After a strong start to 2023, the FTSE 100 has, in recent weeks, corrected back to the uptrend support from the October 6707 low, coming in at 7850ish.

This uptrend support needs to hold to avoid a deeper pullback in the FTSE toward the highs of 2022, which come in around the 7700/7650 area.

Providing the 7700/7650 support was to hold, it would keep the medium-term uptrend intact and set the stage for a test of the February 8047 high.

FTSE daily chart

TradingView: the figures stated are as of March 2nd, 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