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European markets outlook: FTSE 100, DAX and CAC 40 set to slide

European equities recovery appears to be stalling and in need of direction from US markets, with the FTSE 100 slipping below 6000 points this week, while the German DAX and French CAC 40 made minor gains.

European equities appeared rudderless this week, desperately seeking direction from US markets, with the FTSE 100 slipping below 6000, while the German DAX and the French CAC 40 made minor gains.

Blue chips across Europe may have performed better this week had the US dollar not fallen so abruptly in value after Federal Reserve chairman Jerome Powell informing onlookers at the annual Jackson Hole Symposium to expect longer-term easing.

The news left exporter-heavy stocks in Europe pressured by a stronger euro and pound, with sterling hitting an eight-month high against the dollar this week.

Historic levels of global stimulus have helped prop up equity markets, but the pace of recovery is clearly slowing down, with the real economy likely to take years to bounce back.

‘As markets have turned decidedly more risk-on, correction fears are mounting,' analysts at Barclays said in a note to investors.

‘A pullback is of course possible, but we remain of the view that the unwind of the massive flight to safety seen year-to-date is likely closer to the beginning than the end.’

The FTSE 100 closed at 5963 on Friday, while the DAX and CAC 40 ended the week at 13,033 and 5002 respectively.

FTSE 100: technical analysis

This serial underperformer of an index managed to recover from the dip yesterday that saw the cash session close below 6000, according to Chris Beauchamp, chief market analyst at IG.

‘But upward momentum over the previous three sessions stalled at 6060, and with the bounce from last Friday’s lows having been so ruthlessly sold, it looks like the sellers are still in charge.’

‘A fresh drop targets 5990, and then below this 5950 and 5850 come into view,’ he added.

Dax stalls below week’s highs, but closes in on pre-crisis levels

The DAX saw its recovery stall this week, but German stocks continue to fare better than their European counterparts, with the index steadily closing in on pre-crisis levels despite the myriad of headwinds.

The buyers were unable to hold the index above 13,200 earlier in the week, and while the index has bounced from intraday oversold levels, the buyers need to clear the 13,200/13,250 zone to open the way to more gains, Beauchamp said.

‘Losses this week have been contained at 13,000, so we at least have a clear range to guide our view on the next move,’ he added.

How to trade the Weekend UK 100

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Whether you want to go long (buy) or short (sell) the Weekend UK 100 based on the above outlook, you don’t have to wait until the markets reopen on Monday to trade.

The weekend prices for indices and forex are quoted separately to their weekday counterparts, based on our view of the prospects for that market given client business and news flow. As a result, you can use these markets to hedge against risk on your weekday positions.

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This information has been prepared by IG, a trading name of IG Markets Limited. 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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