Jump to content

European indices update: Will weak PMI data encourage a more dovish tone at this week's ECB meeting?

Recommended Posts

Ahead of Thursday's ECB meeting, signs of slowing growth and mounting risks of a double-dip recession take center stage.


original-size.webpSource: Bloomberg


 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 25 July 2023 

In last week's update, we asked whether the DAX and the FTSE could follow the lead of US equity markets and trade and retest year-to-date highs.

While last week's lower-than-expected inflation print in the UK sparked a relief rally, the release of flash PMIs overnight pointed to further weakening of the growth momentum.

In the UK, the composite flash PMI fell by 2.1pts to 50.7, below consensus expectations of 52.3. The decline in the Composite index was broad-based across sectors but skewed towards services which fell to 51.5 vs 53 expected.

In Europe, the Composite, Manufacturing, and Services PMIs for France, Germany, and the Euro Area all declined and came in below consensus expectations. Of particular concern, the German Manufacturing PMI fell to 38.8 from 40.6 previously, the lowest reading except for the Covid-19 and GFC periods, a sure sign of a deep manufacturing recession.

While the market is looking for positive Euro Area growth in Q2 of 2023, ending the current technical recession (the Euro Zone entered a technical recession in Q1 of 2023), the risks of a double dip slowdown are increasing - A risk that even the most hawkish ECB members can hardly ignore ahead of Thursday's ECB meeting.

ECB interest rate meeting preview

Date: Thursday, July 27 at 10.15 pm AEST

At its meeting in June, the ECB raised the deposit rate facility by 25bps to 3.5%, as widely expected. The decision was accompanied by hawkish tones as the ECB's inflation projections for 2024 and 2025 were revised higher. ECB President Lagarde stated that a rate hike in July was very likely, and that the ECB was not considering a skip or a pause.

"Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation."

Despite signs of a further slowdown, including the confirmation that the Euro Zone entered a technical recession in Q1 of 2023, a 25bp rate hike to 3.75% this week is assumed to be a done deal.

The real interest will be on the communication for upcoming meetings and whether next week's hike will be the last or if more are to follow. If this week's hike is flagged as the last, it will trigger a dovish reaction, and the DAX may fly. However, it is equally possible that the ECB will leave the door open for another 25bp rate hike at the September meeting, which currently has about 14bp priced in.

ECB deposit rate chart


original-size.webpSource: TradingEconomics

DAX technical analysis

In last week's update, we noted that the decline in the DAX from the mid-June 16,572 high to the 15,559 low unfolded in three waves, indicative of the pullback being a correction rather than a reversal lower.

From here, a sustained move above resistance at 16,350/375, ideally after Thursday's FED/ECB doubleheader, would confirm we are on the right track and open up a retest and break of the mid-June 16,572 high. Aware that if the DAX were to reject resistance at 16350/375, a retest of uptrend support at 15,750 is possible.

DAX daily chart


original-size.webpSource: TradingView

FTSE technical analysis

In last week's update, we noted that the FTSE had reached our downside target at the recent 7229 low, and should the FTSE reclaim trend line support at 7450 and the 200-day moving average at 7560ish, we would move to a more positive bias looking for the rally to extend, initially towards 7800.

The call above has worked out reasonably well. However, since the last update, the downtrend resistance from the 8047 February high has fallen from around 7800 to 7775.

The FTSE needs a sustained break above 7775/7810 to indicate a stronger recovery towards year-to-date highs is underway. Otherwise, a return to 7200 is possible.

FTSE daily chart


original-size.webpSource: TradingView

TradingView: the figures stated are as of July 25, 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.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • In the wake of a brewing conflict between the Nigerian government and Binance, cryptocurrency enthusiasts find themselves on edge, uncertain about the future of their digital investments. Rumors abound that Binance, along with other platforms, might be exacerbating the Naira's devaluation against the dollar, prompting the government to take a hard stance against the exchange. Despite longstanding allegations of wrongdoing, recent events have propelled the government to escalate its actions. The situation has escalated dramatically, with Binance's P2P platform disabled and a staggering $10 billion fine imposed for alleged illegal activities. This punitive measure, coupled with last year's $4.3 billion fine by the SEC, underscores the gravity of the situation. However, skepticism lingers regarding the astronomical sum demanded by the Nigerian government. While Binance has faced regulatory challenges in other jurisdictions, its resilience and market dominance have largely endured. Yet, the potential ramifications of losing access to a key crypto market like Nigeria cannot be ignored. Complicating matters further, the Nigerian House of Representatives has summoned Binance CEO Richard Teng, issuing a seven-day ultimatum for him to address allegations of terrorist financing and money laundering, among other charges. This development casts a shadow over the future prospects of Binance in the country. Amidst the uncertainty surrounding Binance's operations in Nigeria, users are scrambling to identify alternative platforms. While other centralized exchanges (CEX) remain operational within the country, the pressing question remains: which platform will emerge as the most dependable alternative should the situation worsen? https://punchng.com/reps-summon-binance-boss-over-alleged-terrorism-financing/
    • 2024 has been a good year for crypto traders with signs of a bullish market prevailing. For the first time in 3 years, we are witnessing BTC set a new ATH repeatedly. If you endured the prolonged bear market of the previous years, you deserve these gigantic green candles! In addition to BTC's incredible run, several alts have broken out nicely; Ai, memecoin, GameFi projects and so on have spiked. Most notably in the month of February is the run of CEX tokens. According to Foresight News, centralized exchange tokens boast of a widespread price spike in February, based on data from ICO Analytics. Standing tall amongst many is BGB with 62% increase, while ASD, BNB, and KCS witnessed gains of 45%, 33%, and 22% respectively. As a BGB holder myself who’s been holding since June 2023 at an average price of $0.45, it’s been an incredible journey. I’ve witnessed it smash its ATH over again, the latest coming in February when BGB set a new ATH of $1.15. Aside the juicy ROI, BGB usecases have been a flex for me, granting me access to exclusive events, like Launchpads where I’ve also managed mouth-watering gains from my participations. BNB had a remarkable run in the last bull cycle, sadly I missed out having sold mine for peanuts. If you said I’m stoked to right my wrong with BGB this time, you wouldn’t be far from the truth!  Which CEX token(s) are you keenly observing?
    • Look at the transaction log to see why, Most of the time it's because your stop loss is set too close. 
  • Create New...