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European market: FTSE and DAX shake off Eurovision blues, make modest gains as focus shifts to economic data

The UK labour market data may indicate a cooling trend and the ZEW economic survey is expected to show a decline in current business conditions and economic expectations in Germany.

Source: Bloomberg

If there were a correlation between how a county does at Eurovision and how its stock market performs immediately after, it would have been a bad start to a new week for the FTSE and the DAX, with both countries contestants finishing in the bottom two.

Fortunately, no such correlation exists, and both the FTSE and the DAX were able to make modest gains in quiet trading overnight. Without major market-moving events this week in the US (besides ongoing debt ceiling negotiations), the focus will be on European economic data.

FTSE 100

In the UK, labour market data will be released at 4pm AEST this afternoon.

Last month the unemployment rate in the UK increased by 0.1% to 3.8% in the quarter to February 2023. It provides preliminary evidence that a red-hot labour market is finally cooling and that the BoE’s twelve consecutive rate hikes are having the desired impact.

The employment report is expected to see the unemployment rate remain at 3.8%. However, a higher rate and slightly lower wages growth would go some way to putting a hawkish BoE at ease, who expect the unemployment rate to “remain below 4% until the end of 2024, before rising over the second half of the forecast period to around 4½%.”


In Germany, the ZEW economic survey for May is due this evening at 7.00 pm AEST.

Current business conditions are expected to fall to -37 from -32.5 in April, and the forward-looking Economic expectations index is expected to fall to -5 in May from +4.1 in April. This would be the weakest print in 2023 and the first time the index has slipped back into negative territory since December last year.

Also, due tonight at 7pm AEST is the second estimate of Q1 Euro Area GDP and EA employment.

DAX technical analysis

As noted last week, the stunning outperformance of European Equities since September is running out of steam.

However, a sustained break back below support at 15,700/500 (coming from the highs in February and March and uptrend support from the October 11,829 low) is needed to confirm that a deeper pullback is underway towards the 200-day moving average at 14,400. Until then, allow the rally to extend towards 16,400.

DAX daily chart

Source: TradingView

FTSE technical analysis

The BoE’s twelfth consecutive rate hike last week and hawkish tone saw the FTSE probe more deeply into the key 7700/7580 support zone. Not far below here resides the support coming from 200-day moving average at 7515. While the FTSE holds above these levels, a retest of 8000 is possible.

However, a sustained break of the 200-day moving average of 7515 would confirm that a deeper pullback is underway and allow the FTSE to trade towards year-to-date lows 7300/7200 area.

FTSE daily chart

Source: TradingView

TradingView: the figures stated are as of May 16, 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.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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