Global equities are back pursuing new highs in force. European indices have been standing out in the past week with the FTSE 100, DAX 40 and EURO STOXX 50 all beating the performance of US equities. The outlook seems brighter in Europe as growth has remained positive in the first quarter of the year and that has been driving the push higher.
The DAX 40 has encountered some pushback at 18,800 but the bias remains strongly higher. This week we’ll have second readings for German CPI and Euro Zone growth which could provide some moves if they deviate from the preliminary readings, but other than that the economic calendar is pretty empty in Europe.
Momentum may continue to be driven by expectations of lower rates in Europe as markets are currently pricing in an 84% chance of a 25 bps cut from the European Central Bank (ECB) at its meeting on June 6 according to data from Reuters. If these expectations remain high over the coming weeks the path of least resistance for European indices is likely to be higher.
DAX 40 daily chart
Past performance is not a reliable indicator of future results.
Meanwhile, investors will likely turn their attention towards the US CPI data released on Wednesday. Unlike in Europe, inflation has been surprisingly stubborn in the US in the past few months, and that has been limiting the Federal Reserve’s ability to start considering cutting rates. Whilst the resilience in the economic data has been keeping US equities supported, the lack of progress in the disinflation process has been causing domestic indices to lag their international peers.
Headline inflation is expected to drop marginally to 3.4% with core inflation expected to drop to 3.6% from 3.8%. Given the recent resilience in the data, any drop month-on-month is likely going to be welcomed by traders but the fact remains that inflationary pressures continue to weaken the Fed’s ability to unwind its restrictive monetary policy, which should start to show weakness in growth at some point, a headwind for equities.
The US 100 has been building marginal gains over the past few sessions but the bullish momentum is struggling to take hold. 18,250 seems like a short-term resistance for now but even if broken above this level, buyers are likely going to encounter further selling pressures heading towards the March highs at 18,465. The RSI will need to be able to break and hold above 60 in the coming days for the bias to remain bullish. A weaker-than-expected CPI reading could be the catalyst to push the US 100 to a new high this week.
US 100 daily chart
Past performance is not a reliable indicator of future results.