European Equities Rise On Fed Rate Cut Prospects And German Data

(MENAFN- DailyFX (IG)) French government collapse does not impede market optimism

European equity markets rose overnight, supported by expectations of imminent and deeper Federal Reserve (Fed) rate cuts, improved German economic data, and as markets looked past the widely expected collapse of the French government.

French Prime Minister François Bayrou's minority government collapsed after he attempted to pass a budget aimed at reining in France's national deficit, which is the highest as a percentage of gross domestic product (GDP) in the European Union (EU). Concerns over this issue helped propel European and United States (US) long bond yields higher last week.

President Emmanuel Macron is likely to nominate a replacement, marking the fifth prime minister in five years, who will probably face the same challenging task of passing a budget that brought down Bayrou.

Ironically, over the past week, yields in Europe and the US have fallen after US jobs data bolstered expectations of the resumption of the Fed's rate-cutting cycle next week.

German industrial production provides positive signs

In the lead-up to Thursday's European Central Bank (ECB) interest rate meeting, industrial production in the German economy increased for the first time since March, rising 1.3% month-over-month (MoM) in July following a revised 0.1% decline in June.

The stronger industrial production numbers indicate that the euro area economy is performing better than feared, which will help shape the outcome of this week's ECB meeting.

ECB interest rate decision

Date: Thursday, 11 September at 10.15pm AEST

At its last meeting in July, the ECB kept policy rates unchanged, including the deposit rate at 2%. This decision was widely anticipated and marked a pause in the ECB's rate-cutting cycle that began in June 2024, with eight cuts totalling 175 basis points (bp) by June 2025.

With inflation hovering at the 2% medium-term target and the eurozone economy showing resilience despite global trade tensions, the ECB emphasised a data-dependent, meeting-by-meeting approach for future policy decisions, noting that they are in a good position to hold and watch developments.

As such, the expectation for this week's meeting is that the ECB will keep its key policy rates on hold. The European interest rate market is pricing just a 25% chance of another ECB rate cut before year-end.

ECB deposit rate chart Source: TradingEconomics Source: TradingEconomics DAX 40 technical analysis

August was the first since May that failed to feature a record high for the Germany 40 (DAX) . Notably, it featured a run of five consecutive lower closes into month-end, which saw the index close down 0.68% for August.

September has started with the same soft undertone. While the DAX trades below the 24,500 - 24,650 resistance area (coming from the highs of June, July, and August and a possible wonky head and shoulders top), a corrective pullback is expected to develop.

A decisive break below 23,480 - 23,380 would open the way for a deeper decline, initially towards support at 23,000 coming from the June 19 low. Not far below here is the 200-day moving average (MA) at 22,548 which will provide strong support if tested.

Conversely, if the DAX were to see a sustained break above the 24,500 - 24,650 resistance area, it would signal the correction is complete and the uptrend has resumed towards 25,000.

DAX 40 daily candlestick chart Source: TradingView Source: TradingView FTSE 100 technical analysis

For August the FTSE 100 hit a fresh record high of 9357 before falling for four consecutive sessions into month-end. This was the longest losing streak for the index since April and follows an almost 25% rally from the April lows.

Its efforts to reclaim the ground lost at month-end have thus far been unsuccessful. While the FTSE trades below the 9357 record high, a corrective pullback is expected to continue.

This would ideally take the index back towards the 8900 level coming from the highs of March and June. A decisive break below 8900 would open the way for a deeper decline towards support at 8700 coming from the June low.

Conversely, if the FTSE were to see a sustained break above the 9357 record high, it would signal the uptrend has resumed towards 9500.

FTSE 100 daily candlestick chart Source: TradingView Source: TradingView

• Source: TradingView. The figures stated are as of 9 September 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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Chapters

European equity markets climb

ECB interest rate decision

DAX 40 technical analysis

FTSE 100 technical analysis

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