Tech lag, China's rise: European markets trail US, German data holds turnaround clues

European equities seek redemption amidst global challenges

As we approach year-end, European equity markets are poised to underperform their US counterparts for another year. This underperformance is, in part, attributed to the absence of major tech stocks, hindering potential productivity gains. Moreover, the US's superior growth profile and subsequent rebalancing contribute to Europe's ongoing challenges in keeping pace.

Where Europe stands to benefit ahead of the US in the coming months is from its greater exposure to the Chinese economy, which has shown signs of improvement in recent months. One of the first places to show the positive China impact is in German business survey data, including the flash PMI and IFO, scheduled for release later this week.

German HCOB PMIs expectations

Date: Thursday, 23rd November at 7.30 pm AEDT

After falling to a low of 38.8 in July, the Flash Manufacturing PMI has since risen for three months straight. This month, the flash Manufacturing PMI is expected to rise to 41.2 from 40.8. The composite PMI is expected to rise to 46.3 in November from 45.9 prior.

What is expected from the German Ifo Business Survey

Date: Friday, 24th November at 8.00 pm AEDT

In October, the Ifo Business climate indicator rose to 86.9 from 85.9 the previous month. This month, the market is looking for a rise to 87.5, which would be its highest reading in five months, suggesting that the worst of the slowdown is in the rear-vision mirror for the German economy.

DAX technical analysis

As noted last week, the recent decline in the DAX was like that of the S&P 500, in that it displayed countertrend or corrective traits, which provided a bullish bias.

Last week’s break above downtrend resistance at 15,550 (coming from the July 16,615 high), along with its close to the 200-day moving average now at 15,737, provided a high degree of confirmation the correction was completed at the late October 14,666 low.

From here, we expect dips to be well-supported in the 15,700/500 area from buyers looking for the DAX to retest the 16,615 July high in the weeks ahead.

DAX daily chart

FTSE technical analysis

While the FTSE gained last week, its progress has been less exciting, encapsulated in a range above horizontal support at 7200 and below downtrend resistance at 7650ish (from the February 8047 high) as well as the 200-day moving average at 7605.

If the FTSE can see a sustained break above the resistance layers at 7605/50ish, it would set up a retest of the Feb 8047 high. Aware that until this occurs, further range trading is likely, including a possible retest of range lows at 7200.

FTSE daily chart

• _{Source Tradingview. The figures stated are as of, 21 November 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.}