DAX, FTSE Forecast: Two trades to watch

DAX struggles despite signs of the economy improving

• Retail sales rise 1.8% MoM in March vs -1.9% in February.
• German GDP is expected to rise to 0.1% QoQ vs 0% in Q4 2023
• Eurozone inflation is forecast to cool to 2.6% from 2.9%
• DAX faced resistance at 18250

The DAX has opened quietly lower in cautious trade ahead of the Federal Reserve interest rate decision tomorrow and ahead of eurozone inflation data today.

Stronger-than-expected German retail sales have had little impact on sentiment. Retail sales rebounded in April, rising 1.8% after falling 1.9% in February. Recovering consumption bodes well for the overall economic recovery and supports the view that the German economy is turning a corner. The data comes after stronger than expected business climate index and business and consumer confidence data last week.

Looking ahead, attention now turns to German GDP figures, which are expected to show that the economy grew modestly in the first quarter of the year after stalling in Q4 of 2023.

Meanwhile, eurozone inflation is set to show that it cooled further to 2.6%, down from 2.9%. Cooling inflation would support the view that the ECB will cut interest rates at the June meeting, which could be supportive for stocks. Cooler-than-expected inflation could indicate further cuts from the ECB after the June move.

The data comes as the Federal Reserve's two-day interest rate decision kicks off today ahead of a rate announcement tomorrow. Given the sticky inflation, the Fed is expected to leave rates unchanged but could adopt a more hawkish stance.

DAX forecast - technical analysis

  The DAX has extended its recovery from 17400, the April low, before running into resistance at 18250. Buyers must overcome this level to extend gains to 18400, the rising trendline resistance. Ahead of here, the 18460 all-time high comes back into focus.

If the price does not rise above 18250, the psychological level could retest 18000. Below here, the 50 SMA is at 17940, and a break below of the dynamic support could see a retest of the March low at 17600.

 

FTSE rises as HSBC impresses, China manufacturing expands

• HSBC posts quarterly results & a buyback plan
• China's manufacturing PMI rises to 51.4
• FTSE rises towards its ATH at 8194

The FTSE 100 is rising on Tuesday and is set to record its second straight month of gains, boosted by upbeat corporate earnings and despite mixed data from China.

HSBC is up 2.5% after the bank posted better-than-expected pretax profits and announced a $3 billion share buyback, offsetting the news that CEO No Quinn will retire. The Asian-focused bank posted a 3% rise in revenue to $20.8 billion, well ahead of the $16.94 forecast. Pre-tax profit was $12.65 billion, down 2% annually, but still ahead of estimates.

Adding to the good news, the British Retail Consortium noted that inflation was easing in the UK as shop prices rose at the slowest pace in more than two years in April. The data adds to signs that inflationary pressures are cooling, which could bring some relief to the Bank of England as policymakers consider when to start cutting interest rates.

Heavyweight miners were in edging higher after Chinese factory activity expanded at the fastest pace in 14 months in April thanks to rising new export orders. The Caixin manufacturing PMI rose to 51.4, up from 51.1 in the previous month, and was ahead of the 50 level, which separates contraction from expansion. The data is an encouraging sign for an economy still struggling to recover economically.

Attention now turns to the US, where the Fed will start its two-day meeting ahead of tomorrow’s rate decision. A hawkish-sounding Fed could see the market push back rate cut expectations further.

FTSE forecast – technical analysis

The FTSE has broken out above its rising trendline dating back to November last year. The price is rising towards its ATH at 8194. The RSI has tipped into overbought territory, so buyers should be cautious.

A rise above 8200 could open the door to fresh all-time highs towards 8300.

Immediate minor support is at 8080, Friday’s low. Below here, 8000 is a significant support level ahead of 7940, the April 2023 high.