DAX 40, FTSE 100, Dow Jones Analysis
- DAX 40: DAX hovers as markets await ECB’s Lagarde testimony.
- FTSE 100: Moderate gains as UK Economy remains under pressure.
- DOW JONES: US equities nudge higher as markets await Fed Powell’s testimony.
DAX 40: DAX hovers as markets await ECB’s Lagarde testimony
Choppy trading on Monday as investors weighed whether last week’s selloff had gone far enough to price in concerns around rising rate and slowing growth.
Volatility measures remain elevated as investors look for an entry point into equity markets roiled by soaring prices and worries that monetary policy tightening will tip major economies into a recession. Analysts remain divided on the inflation front, with some suggesting we could see pressure on stocks in Q2 as inflation moderates. The alternate view is that more losses will be in store as prolonged inflation and rate hikes will have a deep impact on growth.
Adding further fuel, European Central Bank (ECB) Council Member Martin Kazaks who is a hawk, announced that the central bank will act before July 21 if the need arises. He stated “it is natural to see some increased uncertainty and volatility. We need to live through this situation with a cool head and steady hand to show the market, what’s our direction”. This follows last week’s emergency meeting by the ECB to defend the integrity of the Euro region. Policy makers were forced to act as the risk of fragmentation in the Euro area grew.
Data out in European trading session showed German Producer Prices (PPI) surged by a more-than-expected 33.6% in May, on a year-on-year basis. Europe’s construction and materials index dropped 2.1% after Irish building insulation specialist Kingspan said it had seen the mood in most end markets deteriorate over the last 2 months. Later in the day we have Christine Lagarde speaking which could inject some volatility in the US session.
Having seen relatively choppy prices this morning most sectors on the DAX remain relatively flat with utilities posting moderate gains of 1.3%. Among the notable movers were Beiersdorf AG and Deutsche Bank AG who posted gains of around 3.8% and 2.8% respectively, with Siemens on the other hand lagging -1% on both of its listings.
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DAX 40 Daily Chart- June 20, 2022
From a technical perspective, we had a bearish candlestick close (weekly candle) last week which closed below key support turned resistance at the 13270 area. Friday’s daily candle as we can see from the chart above closed as an inverted hammer and created an inside bar pattern. The Inside Bar pattern is a popular continuation/reversal candlestick pattern.
Having said that, price continues to be pressured and our first point of interest will undoubtedly be our resistance area around 13270. A break above this level could facilitate a deeper pullback, while any rejection could see further downside back below our key psychological level of 13000.
Key intraday levels that might be worth watching:
FTSE 100:Moderate gains as UK economy remains under pressure
The FTSE 100 posted moderate gains in the European Trading session, even as fears persist about the UK economy. The UK is potentially stumbling toward a recession as inflation spirals while the British Pound retests historic lows.
The silver lining for the UK this year has however been the performance of UK stocks, which have thus far held up in comparison to major developed-market peers. The FTSE 100 index is down just 4% this year compared to the MSCI World Index with losses of 23%. As per a Bloomberg survey conducted on 13-17 June, most analysts expect the UK stock market to underperform the global benchmark for the remainder of 2022.
These factors coupled with political risks such as the Northern Ireland protocol and what any changes may mean for the EU-UK relationship adds fuel to the fire. On the calendar we have UK inflation out later this week which could provide further guidance on the (BOE) Bank of England’s policy moving forward with more aggressive rate hikes a possibility.
FTSE gains this morning were mostly attributable to the energy sector followed closely by finance who posted gains of 3.56% and 2.4%, while all sectors were positive with the exception real estate which was down 0.9%. Among the notable movers on the FTSE 100 were Carnival PLC closely followed by HSBC with gains of 7.7% and 6.2% respectively.
FTSE 100 Daily Charts- June 20, 2022
The FTSE experienced a moderate bounce this morning pushing price slightly above the key psychological 7000 level. Price remains pressured of the back of a bearish week with fundamentals not supporting any meaningful retracement yet.
Should price remain above the 7000 handle we could see a push up into resistance at around 7120 area while a break back below the 7000 handle could see price make its way lower.
Key intraday levels that might be worth watching:
DOW JONES: US equities flat as markets await Fed Powell’s testimony
US equitieswere flat in the European session with the DOW struggling to make any significant gains following last week’s market rout. US Treasury futures were mixed, while there is no cash trading in the US today due to a holiday which could contribute to a lack of liquidity.
Markets still await direction after comments by US Treasury Secretary Janet Yellen and Federal Reserve official Gov. Christopher Waller over the weekend. Governor Waller indicated that he would like to slowdown the economy while signaling the unemployment rate may need to rise to get inflation under control.
On the calendar front we have appearances by several Fed officials as well as the much-anticipated testimony by Fed chair Jerome Powell. Powell is set to testify before the Senate Banking Panel on Wednesday and the House Financial Services Committee on Thursday. Also of interest will be S&P Global services and manufacturing PMIs as well as the final Michigan consumer sentiment.
The DOW traded flat to slightly higher this morning with the energy sector struggling, posting losses of 4.57% while technology was up around 1%. Among the notable movers we had American Express and Boeing Co. posting gains of 4.8% and 2.6% respectively.
DOW JONES Daily Chart – June 20, 2022
Following other major equities, DOW breached our support area 30500 last week before posting further declines toward our psychological 30000 level. On Friday we had a daily candle close below the 30000 level with a low of around 29576 before a moderate bounce.
Price is currently trading between our psychological 30000 level as well as pre-covid highs of around 29500 as shown on the chart. A break below the 29500 area could see further downside as pressure remains. A break back above the 30000 level could see a brief recovery.
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda