European stock indices cautious ahead of month end and inflation update as DAX underperforms

European equity markets advance slightly ahead of ECB announcement

European equity markets finished cautiously higher overnight ahead of a busy week featuring key economic data and central bank speeches, including one from European Central Bank (ECB) President Christine Lagarde tonight.

With one trading session left, the Germany 40 (DAX 40) has underperformed its global peers this month and quarter.

• In Germany, the DAX has fallen 0.26% month-to-date (MTD) and is down 0.64% quarter-to-date (QTD)
• In the United Kingdom (UK), theFTSE 100 is up 1.22% MTD and 6.15% QTD
• In the United States (US), the US 500 (S&P 500) is up 3.11% MTD and 7.35% QTD
• In Japan, the Japan 225 (Nikkei 225) is up 5.44% MTD and 11.25% QTD.

Factors affecting the DAX's performance

The DAX’s underperformance likely reflects a combination of seasonal weakness, as September is historically the DAX’s weakest month, and Germany’s economic stagnation, marked by sluggish manufacturing, consumer spending, and persistent inflation.

Additional headwinds include the ongoing war in Ukraine, which appears to be escalating, the end of ECB rate cuts, and a recent DAX rebalancing that saw key stocks like Porsche AG demoted, triggering selling pressure.

With these factors in mind, attention turns to tomorrow night's Euro Area (EA) inflation update previewed below.

Euro Area: inflation

Date: Wednesday, 1 October at 7.00pm AEST

Last month, in August, headline inflation in the Euro Area remained at 2% for a third straight month. Core inflation, which strips out food and energy, also held steady at 2.3% for a fourth consecutive month.

Earlier this month, the ECB kept its three key interest rates on hold as widely expected. This decision followed eight interest rate cuts by the ECB totalling 175 basis points (bp) between June 2024 and June 2025. With inflation at the ECB’s 2% medium-term target and the Eurozone economy showing resilience, no changes were made.

This month, the preliminary expectation is for headline inflation to rise to 2.2% year-on-year (YoY) in September and for the core measure to remain at 2.3%. Such an outcome would likely reinforce expectations for the ECB to remain on hold until the middle of 2026.

The European interest rate market is pricing in only a slim 10% chance of another ECB 25 bp rate cut before year-end and only a modest 33% chance of a 25 bp rate cut by the middle of 2026.

EA headline inflation rate chart

FTSE 100 technical analysis

Late last month, in August, the FTSE 100 hit a fresh record high of 9357, which it retested again overnight, falling just 3 points short. A sustained break above the 9357 record high would indicate the correction is complete and the uptrend has resumed, with scope towards 9500.

However, as long as the FTSE 100 remains below the 9357 record high, there is potential for a dip back to 9100 as part of a sideways correction. If the support at 9100 fails, it could pave the way for a deeper decline towards the psychologically important 9000 support level.

FTSE 100 daily chart

DAX 40 technical analysis

After a strong rally from the April low of 18,489 to the July high of 24,639, the DAX has spent the past two and a half months consolidating those gains.

If the DAX achieves a sustained break above initial resistance at 24,000 and then above trendline resistance at around 24,425, it would suggest the correction is complete and the uptrend has resumed toward 25,000.

Until then, the expectation is for the DAX to continue consolidating the gains made between April and July. As part of this, a dip back to trendline support at 23,300 is possible.

DAX 40 daily chart

• _{Source: TradingView. The figures stated are as of 30 September 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.}