European equity indices update: renewed pressure for the FTSE and DAX
European equity indices have enjoyed a healthy rebound over the past 36 hours but given the Fed's recent rate rise, the markets are feeling the pressure.
Following the violent intraday sell-off that followed the UBS-CSFB takeover on Monday, European equity indices have enjoyed a healthy rebound over the past 36 hours.
Helping the recovery, substantial gains in European Banking stocks after US Treasury Secretary Yellen stated "similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
The upbeat tone will likely evaporate when European markets re-open, taking their lead from a softer session on Wall Street following this morning's FOMC meeting.
While the Fed raised rates by 25bps to 4.75%-5.00% and left the median dot unchanged at 5.125% - a dovish development relative to expectations a few weeks ago, the tone of the press conference had hawkish elements. Fed Chair Powell noted he doesn't "see rate cuts this year" and that the Fed is "committed to restoring price stability."
Risk sentiment further soured after Treasury Secretary Janet Yellen said that the government is not considering "blanket" deposit insurance across the banking system, contradicting earlier reports—an explosive mix of communique to drop on markets with wounds still fresh after recent banking stress.
Given the central bank's stubborn focus on inflation, the fallout of a red-hot UK. inflation print last night (10.4% vs 9.9% expected), which guarantees a 25bp rate hike when the BoE meets tonight, will also be felt.
Of particular concern to the BoE, paying close attention to domestic inflation, an increased contribution to CPI from services by 3.1pp from 2.8pp in January.
DAX technical analysis
The view remains that the Dax completed a five-wave advance (Elliott Wave) from the October 11,829 low to the recent 15705 high and is currently tracing out a corrective pullback.
This week's bounce from the 14617 low is viewed as Wave B or the second wave of the correction, missing another leg lower into the 14,400/14,200 support band.
DAX daily chart
FTSE technical analysis
The recent break below the band of horizontal support 7700/7650 area confirms that a medium-term high is in place at the February 8047 high and that it is currently tracing out a corrective pullback.
This week's bounce from the 7206 low is viewed as Wave B or the second wave of a three-wave correction that has room to extend back to resistance at 7700 before a deeper decline towards 7100/7000 in the weeks ahead.
FTSE daily chart
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
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. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Explore the markets with our free course
Discover the range of markets you can spread bet on - and learn how they work - with IG Academy's online course.
Turn knowledge into success
Practice makes perfect. Take what you’ve learned in this index strategy article, and try it out risk-free in your demo account.
Ready to trade indices?
Put the lessons in this article to use in a live account. Upgrading is quick and simple.
- Get fixed spreads from 1 point on FTSE 100 and Germany 40
- Protect your capital with risk management tools
- Trade more 24-hour markets than any other provider – 26 in total
Inspired to trade?
Put the knowledge you’ve gained from this article into practice. Log in to your account now.
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.