European equities have started the week strong as traders anticipate a potential interest rate cut from the European Central Bank (ECB).
The DAX 40 has reached a new record high, reflecting investor optimism ahead of crucial employment and inflation data from the United Kingdom. The FTSE 100 has also shown resilience, recovering from previous declines amidst corporate and political developments in the face of ongoing economic uncertainty.
The upcoming employment data, set to be released tonight, will be pivotal for the FTSE 100's future trajectory. Analysts expect the unemployment rate to remain steady at 4.1%, while core inflation is projected to rise by 3.4% year-on-year in September, slightly lower than the previous month. These indicators will significantly impact investor sentiment and market movements in the coming days.
Market participants are closely watching the ECB's meeting on October 17, with expectations of a 25 basis points rate cut already priced into the market. Attention is now focused on ECB President Christine Lagarde's insights on future monetary policy adjustments. Recent economic data has highlighted the need for further monetary easing, with weak growth figures and disinflationary trends leading to speculation about additional cuts. The Euro Area rates market is currently pricing in a 25 basis points cut at the upcoming meeting, with another reduction expected in December. This environment of expected easing is likely to influence investor behavior across European markets.
From a technical perspective, the FTSE 100 has experienced a strong rally but has been consolidating within a range defined by support at 8100 and resistance at 8400. A decisive break above the downtrend resistance at 8350/60, followed by a move above the August highs at 8400/20, is necessary to confirm the completion of this correction. Such a breakout would signal a resumption of the uptrend, potentially targeting levels around 8600. However, as long as the FTSE 100 remains below the critical resistance at 8400/20, further sideways price action is likely. Key support levels are identified around the recent lows near 8170 and the 200-day moving average at 8040.
In contrast, the DAX has shown a more bullish trend, breaking above the significant resistance level of 19,000 in late September and reaching 19,500. This upward movement aligns with previous forecasts and indicates a potential resumption of the uptrend. Maintaining support above 19,000/18,900 is crucial for the DAX to continue its ascent towards the psychological barrier of 20,000. Should the index breach this support, it could signal a deeper pullback towards 18,500, with the 200-day moving average at 18,086 serving as a critical reference point.
Investor sentiment across European markets remains cautiously optimistic, driven by expectations of monetary easing and the potential for improved economic indicators. The interplay between corporate performance, political developments, and macroeconomic data will be pivotal in shaping market dynamics in the near term. As traders await the ECB's decision and the release of key UK employment and inflation figures, the focus will remain on how these factors influence market sentiment and investment strategies. The upcoming days are set to be crucial for European equities, with the potential for significant market movements depending on the outcomes of the anticipated data releases and the ECB's monetary policy stance. Market participants will need to remain vigilant and adapt their strategies to navigate the complexities of the current economic environment.