European Stock Markets Face Decline as Central Bank Meetings Loom

On Monday, global equities faced a decline, and the 10-year U.S. Treasury yield approached a 16-year high. This drop was driven by growing concerns that the Federal Reserve's message of maintaining higher interest rates for an extended period could have a negative impact on U.S. consumers. Meanwhile, European stock markets also experienced a slight dip as investors prepared for a week filled with central bank meetings.

In Germany, stocks took a hit, particularly in the Technology, Construction, and Chemicals sectors, which led to lower share prices. On a positive note for the Eurozone, data revealed an unadjusted 6.5 billion euro trade surplus in July, a significant shift from a 36.3 billion euro deficit the previous year. This change was attributed to a drop in energy import costs and a surge in exports of manufactured goods.

The EU's trade deficit with Russia significantly decreased from 105 billion euros to 9.2 billion euros over the first seven months of the year. The trade gap with China, the EU's second-largest trading partner after the United States, also shrank from 220.3 billion euros to 174.7 billion euros during the same period in 2022.

Regarding inflation, the ECB projected a full-year rate of 5.6% for the eurozone, up from its previous forecast of 5.4%. For 2024, the bank anticipated average inflation of 3.2%, compared to the earlier prediction of 3.0%. The ECB's long-term target for monthly inflation remains at 2.0%.

The week started cautiously, with investors scaling back some of the previous week's gains. They had found comfort in signs suggesting that the European Central Bank (ECB) might be concluding its series of interest rate hikes. The ECB had recently raised interest rates to a record high, but the accompanying press release hinted that this might be the last hike, given the challenges facing the eurozone economy. However, the bank mentioned that future decisions on rates would depend on how inflation behaved in the coming months.

Previously, the ECB's announcement had an impact on various sectors. For instance, shares on European stock exchanges rose in response to the news. Frankfurt's blue-chip index gained 1.2%, Madrid's index increased by 1.3%, and indexes in Amsterdam, Milan, and Paris all saw gains of 1.4%. The broader Europe Stoxx 600 index climbed 1.6%. However, the euro weakened against the U.S. dollar and other currencies due to lower interest rates in the eurozone, which reduced the currency's appeal to some investors.

The economic outlook in Germany remains challenging, with the Bundesbank indicating that the economy is likely to contract in the current quarter. The country's industrial sector is in a recession, and private consumption is contributing minimally to growth. Germany's industry, heavily reliant on exports, has been hit hard by weak demand from China, and recovery prospects are limited.

In France, the central bank revised its economic growth forecasts. The French economy is expected to grow by 0.9% in 2023, up from the previous estimate of 0.7%. However, uncertainties in France's main trade partners, particularly a weak outlook for the German economy and sluggish growth in China, are expected to limit gains. Inflation in France is projected to decline, with a forecast of 5.8% for this year, 2.6% for next year, and 1.8% in 2025, just below the European Central Bank's 2% target.

The European stock market is anticipated to experience fluctuations and periods of stability in the lead-up to the forthcoming meetings of the US Federal Reserve and the Bank of Japan. Nevertheless, there is an expectation that it could see a modest uptick following the trend of central banks globally easing off on their tightening monetary policy resolutions.

Data for Technical Analysis (5H) CFD EU50 (Euro Stoxx 50 Futures - Dec 23)

Resistance : 4278, 4280, 4283

Support : 4272, 4270, 4267                                

5H Outlook

Source: Investing.com    

Buy/Long 1 If the support at the price range 4257 – 4272 is touched, but the support at 4272 cannot be broken, the TP may be set around 4280 and the SL around 4250, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 4278 – 4293, TP may be set around 4310 and SL around 4265, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 4278 – 4293 is touched, but the resistance at 4278 cannot be broken, the TP may be set around 4272 and the SL around 4300, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 4257 – 4272, TP may be set around 4252 and SL around 4285, or up to the risk appetite.       

Pivot Points Sep 19, 2023 02:32AM GMT