European indices achieve gains in the June quarter despite trade and economic uncertainty

Germany 40 and FTSE end quarter higher despite weak overnight close

The Germany 40 (DAX 40) and the FTSE 100  indices finished lower overnight but still managed to end the June quarter with gains of 7.88% and 2.08% respectively.

While these gains are modest compared with those recorded by United States (US) indices, they likely feel like a 'win' for many, especially considering how low European indices were trading in early April.

Overnight weakness in the markets was driven by profit-taking after weak economic data was released in Germany and ahead of the 9 July US tariff expiry deadline. The declines came despite reports that the European Union (EU) may be close to reaching a trade deal with the US, and after the United Kingdom (UK) government announced that its trade agreement with the US had gone into effect overnight.

US–UK deal lifts trade hopes, but barriers remain

The US–UK trade deal includes a reduction in US tariffs on British car exports from 27.5% to 10%, and US tariffs on UK steel and aluminium will drop from 25% to 0%. However, a 10% baseline US tariff remains on other UK goods.

In exchange, US aerospace parts — including Rolls-Royce engines — will enter the UK tariff-free, while the UK commits to an $10 billion Boeing purchase.

European economic news and data updates

In recent economic news, European Central Bank (ECB) vice-president Luis de Guindos stated that the eurozone economy is stagnating due to 'enormous and brutal uncertainty' surrounding global trade policy. Weak German retail sales data for May of -1.6% month-on-month (MoM) versus 0.5% expected and cooler-than-expected German inflation for June of 2% versus 2.2% expected have reinforced this concern.

Looking ahead, this week’s key data point will be the EU inflation report released tonight.

Euro Area inflation

Date: Tuesday, 1 July at 7.00pm AEST

For May, the headline inflation rate in the Euro Area declined to 1.9% year-on-year (YoY) from 2.2% previously, falling below the ECB's 2.0% target for the first time since September 2024. The core inflation measure also eased to 2.3% from 2.7% in the previous month, reaching its lowest level since October 2021.

These cooler inflation readings allowed the ECB to cut interest rates by 25 basis points (bp) shortly afterwards. This action brought the ECB's key deposit rate down to 2% and was accompanied by a dovish outlook and guidance indicating a data-dependent approach to future meetings.

In June, headline inflation is expected to rise slightly to 2% YoY, while the core inflation rate is expected to remain stable at 2.3% YoY. The European rates market is pricing in a full 25 bp ECB rate cut in December, which would lower the ECB's deposit rate to 1.75% by year-end.

EA core inflation chart

FTSE technical analysis

From its record high of 8908 in March, the FTSE fell 1364 points to a low of 7544 in early April, before an impressive rebound, almost reaching its record high again.

The FTSE has since pulled back from the 8900 level. If it breaks below support at 8710 – 8700, it could indicate the formation of a double top.

In this scenario, a deeper pullback could head towards the 200-day moving average at 8448. Conversely, if the FTSE stays above 8710 – 8700, it could retest and break the 8900 – 8910 double top.

FTSE daily chart

Germany 40 technical analysis

In mid-May, the Germany 40 surged past a previous double top at 23,746 from March, reaching a record high of 24,479 in early June.

Since then, the index has been consolidating and working off overbought conditions. A dip into the support range of 23,000 to 22,500 might occur but should be seen as a buying opportunity for those looking to retest the 24,479 record high in the latter half of 2025.

Germany 40 daily chart

• _{Source: TradingView. The figures stated are as of  01 July 2025. 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.}