FTSE, DAX, CAC 40 Consolidating, Next Moves Will Be Crucial
- Blue-chip indexes in London, Frankfurt and Paris have lost their recent vigor.
- While further gains are still possible, so is a correction lower.
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Europe’s largest stock markets could be at an important turning point as their recent strength gives way to a period of consolidation. The FTSE 100 index of major London-listed shares climbed from a recent low just beneath 5,500 in mid-February to a high of 7,129.83 on October 11. Since then, however, it has traded sideways to lower and is currently back under the psychologically important 7,000 level.
Chart 1: UK FTSE 100 Daily Chart (December 2015 to October 2016)
In recent days, a host of factors has dented sentiment. The price of crude oil has fallen, and that’s important as energy companies account for around 14% of the FTSE 100 index. Sterling has stabilised after its falls in the wake of the Brexit decision, taking away some of the benefits for exporting companies that are helped by a weaker home currency. Despite robust results from Barclays, other earnings reports have been disappointing.
Moreover, economic growth figures for the third quarter of the year were more buoyant than predicted, with a rise in GDP of 0.5% reducing further the chances of an interest-rate cut by the Bank of England next week.
A similar picture is emerging in Germany, where the DAX blue-chip stock market index climbed from a low just under 8,700 in mid-February to above 10,800 in mid-August, but has since meandered sideways.
Chart 2: German DAX Daily Chart (January 2016 to October 2016)
On Thursday, Deutsche Bank reported a surprise profit but investors no longer expect the European Central Bank to cut Eurozone interest rates again this year. Also, the Euro seems to have bottomed out against the dollar over the last few trading sessions, worsening the prospects for Germany’s exporters. As for France, an advance in the CAC 40 index between late June and a few days ago appears to be petering out too.
Of course, Europe’s stock markets could resume their advance once this period of consolidation comes to an end. However, a reaction lower is by no means impossible.
Upcoming Event Risk
|Events||Date, Time (GMT)||Forecast||Previous|
UK Nationwide House Prices
n.s.a. (YoY) (Oct)
|France GDP (YoY) (3Q A)||10/28, 05:30||1.2%||1.3%|
|ECB’s Coure Speaks||10/28, 07:30|
Euro-zone Economic Confidence
|German CPI (YoY) (Oct P)||10/28, 12:00||0.8%||0.7%|
See the DailyFX Economic Calendar for the remainder of European data through the end of this week.
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