Optimism drives European markets despite global challenges
European indices ended higher overnight ahead of major earnings reports from four of the 'Magnificent 7,' and key economic data in the United States (US) and Europe. With two sessions remaining, the DAX 40 has risen 0.29% month-to-date (MTD), recovering from a 15% fall. The FTSE 100 remains in negative territory, down 1.93%, but this likely feels like a win after diving 12% earlier this month.
The DAX 40's rebound into positive territory is fuelled by:
Optimism about a de-escalation in US-China trade tensions
New German fiscal policies
Hopes for a potential ceasefire in Ukraine.
Additionally, severe tariffs and immigration policies in the US are expected to have a more stagflationary effect on the US economy compared to the rest of the world. This is prompting global investors to reduce their decades-old overweight positions in US stock markets in favour of European and Chinese indices.
Euro strength poses challenges for export-driven economies
The EUR/USD's 10% rally this year and slower global growth temper some of the enthusiasm for European stock markets. In particular, the rise in the euro poses a challenge for Germany's export-driven economy, which is re-adjusting to higher energy prices after weaning itself off cheap Russian gas following the war in Ukraine.
Economic data in focus this week
This puts the spotlight squarely on this week's European Union (EU) growth and inflation data, which are due on Wednesday and Thursday, respectively.
Starting with first quarter (Q1) gross domestic product (GDP), the market is looking for the European economy to grow by 0.2% quarter-on-quarter (QoQ) for an annual rate of 1.1%. For the inflation data, the market expects headline inflation in April to ease to 2.1% from 2.2%, and the core measure to rise to 2.5% year-on-year (YoY) from 2.4% prior.
FTSE 100 technical analysis
From an early March high of 8908, the FTSE 100 fell 1364 points to a low of 7544 in early April, before its impressive rebound.
If the rebound from the 7544 low doesn't extend above 8500 on a sustained basis, there are risks of a downturn to correct part or all of the rally from the 7544 low.
A sustained break above 8500, will indicate that the correction from the 8908-record high to the 7544 low is complete and that the uptrend has resumed.
FTSE 100 daily chart
Source: TradingView
Source: TradingView
DAX 40 technical analysis
From its mid-March double top at 23,746, the DAX 40 fell 4987 points to a low of 18,489 in early April, before its impressive rebound.
The magnitude of the rebound raises some questions about the short-term bearish wave count. One of the three key rules of Elliott Wave is that Wave IV should not overlap with the price territory of Wave I. In practice, we allow some limited flex with this rule, but the rally from the 18,489 low is currently testing those boundaries.
From here, we would prefer to see some immediate weakness to confirm the Wave IV rally is complete and that Wave V lower is underway. Aware that if the DAX 40 sees a sustained break above resistance at 22,500 – 22,700, it will indicate that the correction is complete, and that the uptrend has likely resumed.
DAX 40 daily chart
Source: TradingView
Source: TradingView
Source: TradingView. The figures stated are as of 29 April 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.
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