Abstract: The DAX index is dragged down by the gloomy economic outlook and recession fears, and 13000 is the focus; the FTSE 100 index is waiting for a catalyst, will the Jackson Hole meeting be the catalyst?
DAX: Growth prospects and recession fears keep investors eyeing 13,000
The DAX bounced off support during the European morning as markets accepted the fact that global business activity was sluggish and the economic outlook was bleak. Ahead of the central bank’s annual meeting in Jackson Hole, Fed member Neel Kashkari reiterated the central bank’s hawkish stance.
After yesterday’s Euro and German PMIs showed signs of slowing activity across the economy, we saw the index fall towards the key 13,000 level. German companies warned they were still facing “enormous cost pressures”. In addition, consumer inflation in the euro zone is already close to 9%, which is depressing demand and will also have an impact on sales and profits.
In a rare piece of good news, Germany and Canada have signed a historic hydrogen deal. Canada plans to start shipping green hydrogen produced by wind farms to Germany by 2025, the first step in a partnership to help Europe’s largest economy reduce its reliance on fossil fuels. The schedule may still be far off, but the move is still positive news.
DAX 40-day chart
From a technical standpoint, the weekly has formed a bearish engulfing that suggests further downside is possible in the week ahead. The index has fallen for 3 consecutive days and is approaching the key psychological level of 13,000 and is currently trading below the 20, 50 and 100-day moving averages.
Prices are currently trading at the support area near the previous day’s swing low of 13,100. A daily close below this area could lead to a move back below the key 13,000 level and a retest of the year’s lows. On the other hand, with the changing market sentiment and the opening of the Jackson Hole conference later this week, the price may fluctuate between 13000 and 13500.
FTSE 100: Energy and mining stocks provide some support
The blue-chip index led losses in European trade after losses in U.S. and Asian stocks, with little corporate or economic news to provide direction. UK PMI data on Tuesday were mixed, with services rising while manufacturing fell. The global economy showed signs of slowing, and Britain was not immune to it, while growing strikes and energy worries weighed on sentiment. Britain’s largest business group has warned that Britain’s energy costs threaten to push thousands of British companies to the brink. The Confederation of British Industry (CBI) has urged the government to freeze business rates for another year and take quick and targeted action to prevent other possible business failures.
On the corporate front, Allied Minds (ALML) nearly halved in European morning trade after it said it wanted to delist from the London Stock Exchange. The company, which invests in technology and life sciences, said the cost of maintaining a premium listing on the London Stock Exchange was now “frighteningly high” relative to its size. Defensive stocks including BAE Systems (BAES) and British American Tobacco (BATS) rose 10p to 807p and 18.5p to 3,442p respectively, providing some shelter for investors.
Despite fresh signs that the U.S. economy is slowing, caution remains prudent, with markets expecting the Federal Reserve to continue aggressive policy to curb soaring inflation. The focus now turns to tomorrow’s Jackson Hole meeting in Wyoming, where Federal Reserve Chairman Jerome Powell will comment on U.S. monetary policy on Friday.
FTSE 100 daily chart
The FTSE closed with a candlestick on the daily chart on Friday, signaling a possible indecision ahead, in line with current market conditions.
The index is currently trading above the 50 and 100-day moving averages, which acted as support during the European morning, supporting the index’s recovery from session lows. The bullish trend may still be in play, but some major technical hurdles need to be cleared for it to materialize. We need a catalyst, and that catalyst may be a more concrete message from the Fed at Jackson Hole.
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