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.

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