As we approach year-end, European equity markets are poised to underperform their US counterparts for another year. This underperformance is, in part, attributed to the absence of major tech stocks, hindering potential productivity gains. Moreover, the US’s superior growth profile and subsequent rebalancing contribute to Europe’s ongoing challenges in keeping pace.
Where Europe stands to benefit ahead of the US in the coming months is from its greater exposure to the Chinese economy, which has shown signs of improvement in recent months. One of the first places to show the positive China impact is in German business survey data, including the flash PMI and IFO, scheduled for release later this week.
Date: Thursday, 23rd November at 7.30 pm AEDT
After falling to a low of 38.8 in July, the Flash Manufacturing PMI has since risen for three months straight. This month, the flash Manufacturing PMI is expected to rise to 41.2 from 40.8. The composite PMI is expected to rise to 46.3 in November from 45.9 prior.
Date: Friday, 24th November at 8.00 pm AEDT
In October, the Ifo Business climate indicator rose to 86.9 from 85.9 the previous month. This month, the market is looking for a rise to 87.5, which would be its highest reading in five months, suggesting that the worst of the slowdown is in the rear-vision mirror for the German economy.
As noted last week, the recent decline in the DAX was like that of the S&P 500, in that it displayed countertrend or corrective traits, which provided a bullish bias.
Last week’s break above downtrend resistance at 15,550 (coming from the July 16,615 high), along with its close to the 200-day moving average now at 15,737, provided a high degree of confirmation the correction was completed at the late October 14,666 low.
From here, we expect dips to be well-supported in the 15,700/500 area from buyers looking for the DAX to retest the 16,615 July high in the weeks ahead.
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