European market challenges and varying inflation impacts
The STOXX 600, DAX and FTSE 100 are seeing modest gains at the moment. The financial sector and utilities face challenges and difficulties, and the statements of the central bank governor are important for European markets. In addition, sentiment in the market is affected by upcoming earnings reports, as the performance of companies in different sectors affects the movement of stocks in the region.
Investors are eagerly awaiting the statements of Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde, as they receive great attention in the markets. As for European markets, it expects signals and guidance from central banks on interest rates and inflation policies, with a focus on maintaining economic growth without exacerbating inflation.
In terms of the DAX, it is currently facing 50-day and 200-day moving averages, indicating that investors are cautious. Near the secondary resistance level at 15264.23 could indicate a potential rally if breached, but the indicator below the 200-day moving average indicates dominant bearish sentiment.
In the short term, market sentiment looks bearish, and it is important to monitor resistance levels for any change in trend. The main support is being watched at 14908.01, and there may be room for further downward movement before reaching an important support level.
Monitor upcoming developments in European markets and take advantage of the statements of central bankers to get a better understanding of future trends and make appropriate financial decisions. Market sentiment looks bearish in the short term, with resistance levels monitored for any change in trend. The FTSE 100 hovers slightly above the secondary support level, indicating a weak holdout indicating cautious market sentiment.
Overall, market sentiment is tilted towards a neutral position with a bearish bias, with a possible shift in sentiment at 7401.87 expected.
Rising inflation expectations and fears of deflation
The survey conducted by the European Central Bank in September indicated that the average inflation expectations of respondents rose to 4%, a high level not seen since spring. The increase, compared to 3.5% in August, was driven by higher energy prices and benchmark interest rates. The ECB then revised its forecast, estimating inflation for 2021 at 5.6% and forecasting rates of 3.2% in 2024 and 2.1% in 2025.
In the same month, the eurozone consumer inflation forecast for next year also jumped to 4%. This development was the impetus behind the ECB’s strategy to maintain high interest rates, as revealed by its monthly consumer survey after the summer that saw inflation above 5%. Bundesbank President Joachim Nagel and Martins Kazaks of Latvia, and ECB chief economist Philipp Leyen stressed the importance of vigilance and maintaining current rates until price growth stabilizes, following the interest rate hike that began in July 2022.
The survey also showed that consumers expect a higher economic contraction of 1.2% over the next year, compared to the previous forecast of 0.8%. This is due to an unexpected 0.1% contraction in third-quarter output within the currency block, suggesting a possible moderate recession by late 2023.A trader’s reaction to this level is likely to set the trend on Wednesday.
In addition, respondents expect the unemployment rate to rise to 11.4%, mortgage interest rates to rise to 5.4%, nominal income to grow by 1.2%, and house prices to rise by 2.2%. ECB officials will take into account the expectations of consumer inflation during the next policy meeting in December.
Global markets mixed with the impact of the Fed’s statements
Asia-Pacific stock markets ended the day mixed. South Korea’s Kospi fell 0.91%, as energy names helped beat gains in technology and consumer services companies, Hong Kong’s Hang Seng fell 0.58%, Japan’s Nikkei fell 0.33%, and China’s Shanghai Composite fell 0.16%. INDIAN SENSEX ENDED THE DAY FLAT, UP JUST 0.05%, WHILE THE ASX All OrdinariesAustralia’s TAIEX index closed up 0.33% in mixed trading led by manufacturers’ names. European markets were mixed in midday trading, with US stock futures pointing to a mixed market open later this morning.
Stocks rose yesterday as more balanced comments from Fed officials on future monetary policy moves continued to spur the recent decline in Treasury yields.
This has supported the evolving narrative that the Fed is likely to approach the end of its monetary policy tightening cycle, but the clearer picture will emerge after October’s inflation data next week. That could limit further gains in the near term, at least until the October CPI is released next week.
As we deal with current economic data up to then, Fed officials touring today and the rest of this week, including Fed Chairman Powell, are likely to repeat this more balanced tone. The market will likely welcome this message, but following its sharp gains of 6% to 8% since late October, both the S&P 500 and Nasdaq are facing Technical resistance in the form of 100-day moving averages. That could limit further gains in the near term, at least until the October CPI is released next week.
Price inflation in Germany falls, energy trading declines
Germany’s consumer price inflation rate was confirmed at 3.8%y/y in October, down sharply from 4.5% in the previous month. Food price inflation fell to the lowest level since February 2022 and energy prices fell for the first time in nearly three years.
Services inflation was 3.9%, little changed from 4.0% the previous month, with rent increasing by 2%. Core inflation, which excludes volatile items such as food and energy, fell to 4.3% in October, down from 4.6% in September. It reached its lowest level since August 2022.
Retail sales in the Eurozone declined by 2.90% year-on-year in September and 0.3% month-on-month. Non-food sales fell 1.9% month-on-month, marking the biggest decline since June 2022, while food, beverages and tobacco sales increased by 1.4%.
We have a very light day of economic data with only weekly figures for the MBA Mortgage Applications Index and the latest crude oil inventory data from the Energy Information Administration.
Energy trading continued to decline, falling 2.22% as global demand forecasts point to lower near-term needs. Prices of materials (-1.94%) and real estate (-0.84%) also fell, while shares in the discretionary consumer and technology sector led their gains by 1.12% and 1.09% respectively. The general indices witnessed the same trend as yesterday, with the Dow Jones (0.17%), S&P 500 (0.28%) and Nasdaq Composite (0.90%) recording gains, while the Russell 2000 index closed down 0.28%. On Although the day didn’t have many surprises, Air Products and Chemicals (APD) shares fell 12.65% after the company, despite exceeding earnings per share estimates, lost revenue and left investors feeling that the 2024 guidance may not be achievable.