The DAX and FTSE are Cautious as Markets Assess the Deteriorating Economic Outlook

Aug 24, 2022

lCritical 13000 level in Play as Growth Outlook and Recession Fears Weigh, according to the DAX 40.

lEnergy and mining stocks on the FTSE 100 limit losses.


Early in European trade, the Dax rebounded off support as markets adjusted to a global slowdown in business activity and dimming economic outlook. Neel Kashkari, a member of the US Federal Reserve, also reiterated the hawkish rhetoric from the US central bank as the Jackson Hole symposium draws near.

The indicator dropped toward the crucial 13000 thresholds as yesterday's Euro and German PMIs revealed signs of slowing economic activity nationwide. German companies warned that they continue under "severe cost constraints." Additionally, consumer inflation in the Euro Zone is already at or nearly at 9%, which restrains demand and hurts sales and profitability.

Germany and Canada have signed a historic hydrogen agreement, a rare positive. By 2025, Canada plans to begin supplying Germany with green hydrogen generated by wind farms as the first step in cooperation to assist Europe's largest economy in reducing its dependency on fossil fuels. Although the timing is far off, the move is still good.

Technically speaking, the weekly chart showed a bearish engulfing candlestick close, which suggests there may be an additional downside in the coming week. As we get closer to the crucial psychological 13000 mark, we have now had bearish price movement for three days in a row. Currently, our price is below the 20, 50, and 100-SMA.

The most recent daily swing low is located near the 13100 level. Thus we are currently trading in a support zone. If the daily candle closes below this level, we might retest the YTD lows and push back below the crucial 13000 mark. The Jackson Hole symposium later in the week and the shifting emotion, on the other hand, could cause us to stay range-bound between the crucial level and 13500.

Energy and mining stocks in the FTSE 100 keep losses in check.

With little corporate or economic news to guide it, the blue-chip index was dragged lower in European trade after falling in the US on Tuesday and Asia overnight.

The UK PMI data released Tuesday was mixed, with services expanding while manufacturing contracted. The UK is not immune to indicators of a global recession, and escalating strikes and energy concerns weigh down the sentiment. The largest business organization in Britain has warned that rising energy costs in the UK risk driving thousands of businesses to the verge of bankruptcy. To prevent otherwise viable enterprises from going out of business, the Confederation of British Industry (CBI) requested the government to freeze business rates for an additional year.

According to the CBI, during the next three months, two-thirds of businesses would see an increase in their bills, with a third of those businesses experiencing more than 30 percent hikes.

Announcing its intention to delist from the London Stock Exchange, Allied Minds (ALML) stated its shares would get almost half this morning.

The tech and life sciences investment firm claimed the costs of maintaining a premium listing on the LSE were now "prohibitively expensive" about its size.

After increasing by 10p to 807p and 18.5p to 3442p, respectively, defensive equities like BAE Systems (BAES) and British American Tobacco (BATS) offered some protection.

With predictions that strong tactics to curb surging inflation would continue despite new indications that the US economy is faltering, caution is still the prudent course of action. Now, the focus is on the beginning of the Jackson Hole Economic Symposium in Wyoming tomorrow. Federal Reserve Chairman Jerome Powell is scheduled to speak on Friday about US monetary policy.

According to the current state of the market, the FTSE closed Friday with a Doji candlestick on the daily chart, indicating that uncertainty may lie ahead. Because losses have been restrained in comparison to global indices, the index continues to defy the trend.

The 50 and 100-SMAs, which supported early European trade and allowed the index to recover from session lows to gain 60 points ahead of the US Open, are currently above our current price. However, critical technical obstacles must be overcome before the bullish trend can resume. We would require a catalyst, which the Fed might present at the Jackson Hole conference with a more subtle message.