CAC, DAX forecast: EU stocks struggle amid political uncertainty as Wall Street hits records

It is the last trading day before the Thanksgiving break, with many traders likely to be taking Friday off too. There will be lots of economic data releases due from the US shortly, which should make for a busy trading day on Wall Street. US futures were mixed with small cap Russell futures in the green and Nasdaq in the red. This comes a day after the S&P and Dow both hit new record highs. But in Europe, the major stock indices were nursing losses of around 0.6 to 1.4 percent by mid-day in London. Here, concerns about US tariffs, a struggling Eurozone economy and political uncertainty in France and Germany are continuing to hold back risk assets. Indeed, the French CAC index is now nearly 6% lower on the year, albeit not yet reaching the summer levels. The DAX forecast is also far from bullish. A key drag has been the European auto sector’s reaction to potential tariff threats, with German automakers seeing equity prices fall quite noticeably lately.

Widening French bond spreads hitting CAC index

It has now been four months after the French snap elections and the country is still in political turmoil, which has been reflected in the CAC index being down nearly 6% year-to-date – a sharp contrast to US indices having one of their best years ever.

French assets are thus remaining under renewed pressure. Exacerbating the selling is the rising gap between French and German 10-year government bond yields. The spread has now reached levels not seen since the eurozone debt crisis of 2012, at 0.8 percentage points. This could widen even more, if political uncertainty continues to escalate.

Prime Minister Michel Barnier has cautioned that financial markets could face a “storm” if lawmakers reject the government’s budget proposals.

The political standoff over France’s budget means the government is on the brink as it struggles to reduce the fiscal deficit. Barnier now faces a no-confidence motion from Marine Le Pen and the far-right National Rally party, which has vowed to topple his administration unless their demands are met.

German’s own political turmoil weighing on DAX forecast

While not falling like the French markets, the German DAX index has not been rallying like the US indices either. Instead, it has been merely consolidating in recent weeks. But like France, Germany is dealing with its own political turmoil while threats of US tariffs in 2025 makes for a less-than-ideal scenario for German automakers, weighing on the DAX forecast. With Trump to disrupt global trade, the automotive industry is already feeling the strain. European automakers such as Germany’s Volkswagen are particularly vulnerable.

German consumer confidence takes a tumble

Today’s main data release from Germany was the German GfK Consumer Climate. This was expected to deteriorate slightly from -18.3 in October, which despite being deep in the negative (pointing to pessimism) was an 18-month high. However, German consumer have now turned more pessimistic again, with the index printing -23.3.  This comes after German IFO business climate, which is a business sentiment survey, also fell more than expected earlier in the week. Investors are fearing a winter recession is looming and with ongoing political uncertainty hurting sentiment in Germany and France, the outlook doesn’t look too bright either.

Technical CAC and DAX forecast: key levels and factors to watch

Two of Europe’s largest economies are dealing with both political and economical issues, and for that reason it is no surprise to see their indices struggling. The French CAC index has been making lower lows and lower highs since peaking in May and remains vulnerable.

The CAC index has already broken below several support levels and is sitting underneath all its major moving averages, making a bearish market. At the time of writing, it was trying to take out the bullish trend that had been in place since October of 2023, at around 7135. If it breaks below this level decisively, then the August low of 7025 comes into focus, followed by 7,000 and then the October 2023 low at 6751.

Meanwhile, the DAX has not been able to find any sustainable bids since breaking out of its rising wedge pattern at the end of October. While we haven’t seen the formation of a major bearish reversal pattern to turn the technical DAX forecast bearish, the current price action is far from ideal for the bulls.

With the DAX now inside a holding pattern, and the macro backdrop not being so bullish, could we see some weakness come in soon? Key short-term support was being tested around 19,150 to 19,200 area the time of writing. A potential break below this area could see the index go for a re-test of the key support area between 19,000 and 18,928 – the latter marking the May 2024 high. A potential breach of this area is needed to tip the balance in the bears’ favour.

Source for all charts used in this article: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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