European indices start the week lower

European indices started the new week on the back foot ahead of this week's data-rich economic and earnings calendar in Europe and abroad.

In addition to an action-packed lineup in the US, which includes an FOMC meeting, jobs data, and earnings reports from four of the "magnificent seven," there is also a Bank of England (BoE) meeting and growth, and inflation updates due in Europe.

European economic updates

Starting in Europe, Q2 GDP due tonight is expected to rise by 0.7% YoY, up from 0.4% YoY in Q1. Headline inflation due tomorrow night (Wednesday) is expected to ease to 2.3% YoY in July. Core inflation is expected to fall to 2.7% YoY from 2.9% prior due to moderation in the services sector. This mix of GDP and inflation numbers keeps the European Central Bank (ECB), which delivered its first rate cut in five years in June, on track to deliver follow-up rate cuts in September and December.

Bank of England meeting

In the UK, expectations are building that the BoE will decouple from the Fed and cut rates at its meeting this week, previewed in more detail below.

  • BoE interest rate decision

  • Date: Thursday, 1 August at 9pm (AEST)

In June, the BoE kept rates on hold at 5.25% with a 7-2 vote as Ramsden and Dhingra again dissented in favour of a 25 bp cut.

The forward guidance was mostly unchanged, reiterating that "monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target." However, the wording of the minutes did have a dovish tilt, noting that for some members, the policy decision was finely balanced as recent upside surprises in services price inflation did not alter the disinflation trajectory.

While labour market data has softened, there remains a view that core inflation at 3.5% is still well above the BoE's 2% target, and as such, it's too early to cut rates. Nonetheless, the rates market is pricing in 15 bp (62% chance) of a 25 bp rate cut at this week's meeting.

BoE official bank rate

Source: BoE

FTSE technical analysis

After breaking above resistance at 8050 in late April and reaching the mid-May 8474 high, the FTSE has since spent the better part of the past two months range trading between 8300 and 8100.

Range traders will no doubt be looking to buy dips to 8100/8050 or sell pops to resistance at 8300/8350. For those who prefer a more directional style of trading, a sustained break below support at 8100/8000 would signal that a deeper decline towards 7800 has commenced. Conversely, a sustained break above 8300/8350 is needed to indicate a retest and break of the 8474 high is underway.

FTSE daily chart

Source: TradingView

DAX technical analysis

The view remains that the DAX completed an Elliott Wave five-rally from the October 14,630 low to the mid-May 18,892 high before entering a correction. Two and a half months later, the correction is continuing to unfold.

We would use a sustained break above the trendline resistance at 18,750 and the mid-June high of 18,779 as an indication that the correction is complete. However, if the DAX were to first break below support at 18,000/17,950, it would warn that the correction is deepening towards the April 17,626 low.

DAX daily chart

Source: TradingView