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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

European equity indices market update: FTSE consolidates ahead of GDP data

Gains in December were enough to see the FTSE lock in a positive return in 2023 but not enough to spare the UK stock market its blushes as it lagged behind its global peers.

Source: Bloomberg

Have BoE's rate hikes reigned in inflation?

The FTSE's underperformance resulted from a lack of technology stocks and an overreliance on mining and energy stocks against the economic backdrop of high inflation and low growth.

There are signs that the Bank of England's (BoE's) aggressive rate hiking cycle has brought inflation under control. Last month, inflation fell to 3.9%, the lowest level since September 2021 and below consensus expectations, looking for a fall to 4.4% from 4.6%.

However, growth concerns remain, and whether the FTSE can build on its December gains will, to an extent, depend on the UK's latest GDP report, due this Friday at 6pm AEDT.

What we can expect from UK's November GDP report

The British economy contracted 0.3% in October, weighed on by wet weather and elevated interest rates. The soft number ended a run of slightly better than expected GDP numbers and saw the UK interest rate market move towards the 5 X 25bp BoE rate cuts currently priced in for 2024.

The market is expecting a modest gain of 0.2% in November. However, if another negative print is viewed, it would increase the chances that the UK economy will enter a recession (two consecutive quarters of contraction) in 2024, for the first time since Covid in 2020.

Source: Trading View

FTSE technical analysis

In the final weeks of 2023, the FTSE made a confirmed break above the 200-day moving average at 7567 and downtrend resistance at 7600 from the 8047 high. Providing the FTSE continues to hold above the 200-day moving average (sustained basis), we expect to see the FTSE build on December's gains towards the April 7936 high.

Aware that should the FTSE lose the support of the 200-day moving average, a retest of range lows 7300/7200 is possible.

FTSE chart

Source: Trading View

DAX technical analysis

The DAX was on irrepressible form into the end of last year, punching to a fresh all-time high, above 17,000, which we view as a potential Wave V (Elliott Wave). The rally from the October lows has left the RSI indicator displaying clear signs of bearish divergence.

While bearish divergence and a potential Wave V high don't guarantee a pullback, the setup warns against opening fresh longs at these levels. Instead, we would prefer to wait for a corrective pullback and signs of basing to look to open longs.

DAX chart

Source: Trading View

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